Gaw Joins with Country Garden Affiliate for $1B China Distressed Assets Fund

Hong Kong-based private equity firm Gaw Capital Partners has joined with an affiliate of China’s largest developer by sales to set up a new $1 billion special situations fund targetting distressed real estate opportunities in the country.

Gaw is launching the vehicle with Shenzhen Paladin Asset Management, an investment affiliate of Country Garden Holdings, according to a joint announcement by the firms on WeChat. The fund aims to raise $1 billion to acquire and operate non-performing assets in the Chinese real estate sector.

A representative of Gaw Capital declined to provide further details to Mingtiandi, noting that the partnership is still in the framework agreement stage. First reported by investment news portal China Money Network, the new fund adds to a series of distressed asset investments by domestic and overseas players in China, including China Vanke, PAG, Blackstone and Bain Capital.

Gaw Builds on Distressed Deal Record

Although Gaw Capital is best known for its value-add approach to acquiring and repositioning properties, the firm run by Hong Kong’s Gaw family also has a track record of scooping up distressed assets. Last October, the company bought the Standard Hotel in Manhattan’s meatpacking district for $323 million – a $77 million discount on the reported selling price of the boutique hotel in early 2014.

Before he co-founded Gaw Capital Partners, Goodwin Gaw kicked off his investment career in the US by purchasing the Hollywood Roosevelt Hotel in Los Angeles in 1995 and later renovating the iconic property that had been operating in the red.

Closer to home, in 2007 Gaw Capital picked up Grand Central Plaza, an abandoned property in the northeastern Chinese city of Dalian, then refurbished the asset into an office tower with a retail podium and serviced apartments measuring more than 100,000 square metres.

When Gaw launched its third China real estate fund in 2010, the company indicated that distressed assets in first-tier cities could be among the opportunities discounted opportunities targetted by the $375.5 million vehicle. Gaw Capital had $2.14 billion of assets under management as of year-end 2017.

Established by Country Garden in 2015, Shenzhen Paladin Asset Management currently has over RMB 10 billion ($1.47 billion) under management, according to its corporate website.

More Investors Target China’s Distressed Real Estate Deals

Through the reported tie-up, Gaw and Country Garden join a roster of investors that are scouting for distressed opportunities as China’s real estate industry struggles with a credit crunch. Strict regulations on the domestic bond market imposed in September 2016 – which may have been partially lifted earlier this year – have compelled a number of mainland builders to diversify away from traditional property development.

Last December, residential giant Vanke teamed up with China’s largest bank ICBC to set up a fund dedicated to investing in distressed assets. Vanke said it would invest RMB 5 billion ($758 million) in the vehicle expected to be worth RMB 10 billion, plus RMB 955 million in a similar fund with a RMB 2.29 billion target.

Hong Kong-based private equity house PAG was reported last September to be raising funds for a China-focussed distressed debt vehicle, China Special Situations Fund, with a target size of up to $300 million. The investment player purchased two portfolios of non-performing loans in China within one year.

US alternative investment giant Blackstone acquired a portfolio of Chinese commercial loans for $195 million last August, and during the same month, Boston-based Bain Capital Credit snapped up a $200 million horde of mostly real estate-backed debt in the eastern Chinese province of Jiangsu.

The announcement of Gaw’s new fund comes in the same week that the company marked the $412 million close of a value-add real estate fund dedicated to opportunities in the US west coast.