After selling a pair of mainland commercial properties late last year for a combined RMB 5.56 billion, Singapore’s ARA Asset Management this month entered into a joint venture to buy a Chengdu retail property from a Tishman Speyer-managed fund.
For its acquisition of the Atrium mall in the Sichuan provincial capital’s Chunxi Road- Yanshkou commercial hub, the Warburg Pincus-backed property investment specialist has set up its first ever renminbi denominated fund.
ARA Qihang Equity Investment fund raised RMB 400 million ($58 million) to co-invest with a matching RMB 400 million vehicle managed by CICC Capital, the private equity arm of China’s largest investment bank, according to a stock market announcement by Singapore’s Metro Holdings, which is one of the investors in the CICC Capital effort.
With an interest in Chengdu’s potential and a belief that much of China’s shopping eco-system has already made the leap to experiential retail, the partners expect, after taking on additional debt financing, to invest a total of RMB 1.6 billion in the 45,352 square metre (488,165 square foot) retail property. The parties involved declined to disclose the transaction price for the asset.
Buying into Chengdu’s Commercial Core
Completed in 2012, the Atrium mall occupies the lower four floors plus a basement level of Tishman Speyer’s Atrium commercial tower, which the New York developer built as the second phase of a mixed-use project which also includes a tower each of condominiums and serviced apartments.
The Skidmore, Owings and Merrill-designed complex is located in one of Chengdu’s prime commercial districts near major projects by Hong Kong developers Swire Properties and Wharf Holdings.
“We are very bullish on Chengdu,” Alvin Loo, ARA Asset Management’s Head of China told Mingtiandi. “And this location is directly opposite Taikoo Li and IFS and has excellent repositioning and asset management opportunities.”
Ready for the Future of Retail
Despite the growth of China’s e-commerce sector, the Chengdu facility appears to have been successful in filling its floors.
According to figures from Savills Research in China, retail projects in the area around the Atrium mall currently average just 5.5 percent vacancy with passing rents for first floor space at around RMB 850 per square metre per month during the first quarter of 2019.
ARA indicated that while retail can still be a challenging sector, in China many of the well-managed shopping centres have already made the leap to becoming experiential destinations. The company has the view that, with the ongoing need for family gathering spots, some retail assets can be acquired at prices that provide opportunities to profit from the ongoing rise of the mainland middle class.
Among the major tenants in the Atrium mall, which has a total of 26,078 square metres of net lettable area, are WM Motor (威马汽车)、Qiantu Motor (前途汽车), Highwave Sports (劲浪体育), and a Nike Kicks Lounge, according to Savills.
The entire commercial tower is certified LEED Gold for the building design and construction as well as for the building core and shell.
ARA Breaks into RMB Funds
For ARA, which has previously found success managing investments for mainland institutions such as China Life, this latest vehicle brings the company into a select group of foreign firms, including Tishman Speyer, which have succeeded in raising real estate equity from Chinese investors.
“Establishing an RMB fund opens up a new source of capital and new opportunities,” ARA’s Loo told Mingtiandi. “We can tap a deep pool of local investors.”
In earlier cooperations with mainland fund partners such as ARA Harmony VI, which the investment firm set up with China Life to buy the Century Link commercial complex in Shanghai’s Pudong district from what is now CK Asset for RMB 20 billion in 2016, ARA had established offshore US dollar denominated vehicles.
While declining to identify this latest fund’s limited partners, ARA said that they had backing from mainland institutions and wealth managers. Once the acquisition closes, ARA will serve as the asset and property manager for the mall.
According to a 2014 Wall Street Journal report, Tishman Speyer had sold the Atrium commercial tower to a fund managed by mainland real estate giant Ping An. Contacted by Mingtiandi, sources at Tishman Speyer in China had not responded by time of publication.
Finding a New Partner With the Right Friends
In addition to venturing into renminbi funds, the Chengdu investment brings ARA into a partnership with a branch of one of China’s oldest and largest investment banks.
“Collaboration with CICC Capital is a huge plus,” Loo said. “They are one of the premier financial institutions in China, and their good relationships with local governments can open up funding channels and monetisation options. It’s very complementary with ARA.”
SGX-listed Metro Holdings which has its own portfolio of commercial and residential properties in China is investing RMB 200 million to back the Chengdu venture through the mainland private equity firm’s CICC Qihang Fund.
According to its 2018 annual report, CICC ranked first in terms of the volume of underwriting for A share IPO on the mainland and first in terms of Hong Kong stock refinancing. The bank also ranked second for Hong Kong IPO and in terms of the volume of transactions in China’s mergers and acquisitions market, all of which could prove helpful in providing avenues for financing for potential exits from the fund investment.
Note: This story has been updated to indicated that the 5.5 percent vacancy rate and average rents of RMB 850 per square metre per month refer to prevailing conditions in the subdistrict where the project is located. An earlier version attributed those rates to the project itself. Mingtiandi regrets the misunderstanding.