China’s real estate downturn may turn out to be good news for Carlyle Group as the private equity firm is said to be in advanced talks with China Vanke to buy into the developer’s shopping mall assets.
According to a report in Reuters, Carlyle is discussing taking a share in nine of Vanke’s retail centres for RMB 6 to RMB 10 billion, with different sources citing different values. Reuters’ sources indicated that the new partners could sign an MOU on Thursday of this week, but both Carlyle and Vanke would not comment.
A number of international private equity players see China’s current property slump as creating a greater role for foreign capital as developers become more eager for new sources of financing.
Greater Role for Private Equity
The sight of China’s sliding real estate market has been an enticing one for private equity firms as once-confident developers now find themselves much more eager to discuss asset values and acquisitions than they were during last year’s boom.
Already in July this year Standard Chartered Private Equity led a consortium of investors putting $124 million into a Chongqing mixed-use project, and Hong Kong-based private equity firm Gaw Capital acquired a mixed-use project in Beijing for $928 million.
Vanke Venturing into Shopping Malls
For these private equity investors, the slowing retail sector might provide the best bargains, and the opportunity to work with developers such as Vanke who might have previously spurned PE advances.
Vanke opened its first shopping mall in December of last year and in June announced that it plans to build at least 20 retail centres across the country.
As the Shenzhen-based developer’s core business of home building slows down, it has been looking for new areas for growth. Unfortunately, the retail real estate sector has also been sagging after the country’s shopping boom led many companies to put up malls in unfavorable locations or without proper planning.
Carlyle Likes China Retail
While retail has fallen out of favor with many investors due to sliding expectations for store expansion and a glut of space in some areas, Carlyle appears to have retained its taste for Chinese shopping malls.
In April last year the private equity firm spent $266 million to acquire the Central Plaza mixed-use complex in Shanghai, and then in May it bought a 49 percent stake in two malls owned by developer SZITIC Commercial Property (SCP) for an undisclosed sum.