China’s real estate industry is about to receive another $1 billion wave of foreign funding, and this latest surge comes from Hong Kong-based private equity firm, RRJ Capital.
According to Reuters, RRJ’s new fund will focus on residential, retail, hospitality and senior homes in China. The first $500 million tranche of the fund is expected to close during the first quarter of 2014, and will target a 25 to 30 percent return for investors.
RRJ Already Active in China’s Real Estate Market
RRJ has already been actively investing in the China market through existing funds, and just last month made a US$50 million investment in new shares of Shanghai-based CIFI Holdings (Group) Co. CIFI is one of China’s 50 largest property developers. The private equity firm had earlier purchased $100 million worth of CIFI bonds.
Private Equity Firms Competing to Raise Funds for China
RRJ joins a number of regional and global firms which have been raising private equity funds to invest in China’s real estate market.
Earlier this month, RRJ’s Hong Kong competitor, Gaw Capital announced that it had already raised US$1 billion for its fourth China real estate fund, and Global Logistic Properties of Singapore last week said it is launching a $3 billion China real estate fund, up from a planned $1.5 billion.
Global private equity firms have also been raising funds that are acquiring or planning to invest in China’s real estate market. U.S. private-equity firm Blackstone Group is raising a $4 billion Asia-focused fund, and buyout pioneer KKR closed a record $6 billion Asia fund in July of this year.
PE Firms Already Buying China Real Estate Assets
Earlier this month Blackstone invested in $400 million to buy 40 percent of Chinese mall developer SCP, and its competitors have also been active in the market. Carlyle Group and Sam Zell’s Equity International both invested into China’s warehouse real estate market in August, and Gaw Capital bought the Cross Tower in Shanghai earlier this year.
According to Thomson Reuters, private equity investments into China’s real estate sector had risen 53 percent from January to early November of this year, compared to the same period last year.
Focusing on Residential and Retail
Commenting to the media on RRJ’s investment strategy, RRJ CEO Richard Ong said, “We are focused on residential. We don’t mind investing as well in shopping malls, but not office space. Shopping malls fit in with the growth of the middle class.”
Residential projects have fallen out of favor with foreign investors in recent years, as government policies to restrict prices have crimped returns and raised the specter of risk. However, housing prices have been rising steadily in recent months as the Xi administration has shown a willingness to relax its hold on the residential market.
Big Targets for a Newcomer PE Firm
RRJ Capital has only been around since 2011, but it successfully raised $3.5 billion for its second fund earlier to this year, and already is said to have US$5.9 billion under management.
Before starting RRJ, Richard and Charles Ong, the Chinese-Malaysian brothers who founded and operate the firm had already held prominent fund management positions in the region.
Before setting up RRJ, Richard Ong had a long career with Goldman Sachs, and Charles spent 10 years managing investment projects for government-linked Singapore investment firm Temasek Holdings.