TH Real Estate and Gaw Plan $2B China Outlet Mall Fund

Global property investment manager TH Real Estate has teamed up with Hong Kong’s Gaw Capital to launch a new investment fund aimed at capitalising on China’s love for discounted luxury goods.

The China Mall Outlet Fund hopes to build on the mainland success of a chain of Florentia Village suburban shopping venues set up by Silk Road Holdings, a joint venture between TH (which was formerly known as TIAA-Henderson Real Estate), Gaw Capital and Italy’s RDM Group.

Building an Outlet Chain on the Mainland

TH Real Estate said that it hopes to build the fund’s portfolio to around $2 billion in the next five years, and to get started on that path two of the existing Florentia Village projects held by Silk Road will be injected into the new fund.

“This presents a rare opportunity for institutional investors to gain access to a niche sector, with a proven team. The strategy aligns well with our philosophy of creating products that are designed to benefit from the structural growth sectors of ‘Tomorrow’s World,” said Chris Reilly, Managing Director, Asia-Pacific at TH.

The two outlets to be included in the fund, one in Shanghai’s Pudong area, and another near Tianjin, are among four either opened or underway in China since the first Florentia Village was opened in Tianjin in 2011. Since then, the group has opened projects in Shanghai in February 2015, and in Guangzhou in September last year.

In December 2015, the Florentia Village group broke ground for their fourth outlet in Chengdu, and the Silk Road Holdings partners have said they have plans for another three discounted luxury venues on the mainland.

“Our investment in outlet malls in China has been a highly successful strategy since 2012. The rapid expansion of China’s middle class and their spending power has been extraordinary, especially as seen in the retail and tourism sectors, said Kenneth Gaw, President of Gaw Capital Partners.

Taking Aim at Discounted Luxury

While sales of full-price luxury goods have struggled on the mainland, Chinese shoppers don’t seem to have lost their taste for high-end brands. If they can get them at the right price.

American-owned European outlet mall developer Value Retail has also begun building outlet malls in China, and has projects in Suzhou and near Shanghai Disney Resort. Competition has also sprung up from local mainland outlet builder Sasseur which already has several mainland outlets and last year received $100 million in investment from LVMH’s L Capital investment fund.

Many other Chinese consumers are sourcing their own discounted luxury goods directly from overseas either by travelling themselves or through family and friends. Such such daigou sales are estimated to have reached RMB 43 billion in 2015, or about 38 percent of all luxury sales in mainland China, according to Bain & Company. In recent months, however, Chinese customs authorities have begun cracking down on goods hand-carried through airports and other checkpoints and are enforcing penalties on those caught with excess luxury goods.

TH, which has invested in $4 billion in outlet projects globally, will be the fund manager for the investment vehicle and says that its goal is “to offer institutional investors an opportunity to acquire and gain long-term exposure to a scalable portfolio of leading designer outlets malls in China.”

RDM Group, which has developed and managed outlet malls in Europe will act as asset manager, and Gaw Capital will act as co-capital sponsor for the investment vehicle.