Gaw Joins Harbour Apartments in Raising $2.6B for China Rental Housing

Chinese co-living operator Harbour Apartments has teamed up with its backer Gaw Capital Partners and a mainland financial firm in a drive to raise $2.58 billion in new capital for developing rental flats and co-living spaces.

Shanghai-based Harbour is setting up a $1 billion vehicle with private equity house Gaw Capital dedicated to buying existing properties for conversion into flats, according to an account in the South China Morning Post. In addition, the co-living brand is partnering with Far East Horizon Ltd to create a RMB 10 billion ($1.58 billion) buyout fund that will acquire land plots for the development of rental apartments.

Harbour now has a portfolio of 75 projects totalling 15,000 rooms in Shanghai, Beijing, Shenzhen, Hangzhou and other key cities in China, and plans to expand to 40,000 rooms by the end of this year, according to comments by the company’s CEO Huang Haibin cited by the newspaper. Founded in 2015, the startup’s model previously centred on leasing out entire buildings and subleasing space to residents.

The new funds represent a move into “asset-heavy” operations, whereby Harbour would own land and properties in addition to its “asset-light” activities focused on leasing and management.

Harbour Closing in on Project Purchases in Shanghai

Harbour aims to satiate a demand for affordable housing by providing quality domiciles for rent, marketed to fresh graduates and young professionals in the country’s top-tier cities. The company also works with universities to provide tailored, dormitory-style abodes for students.

Hong Kong-based private equity firm Gaw Capital joined unnamed investors in a RMB 400 million investment in Harbour in August 2017.

According to the South China Morning Post, Gaw was joined by Shanghai-based private equity shop Trustbridge Partners in that first round of funding. Representatives of Harbour Apartments and Gaw Capital did not immediately reply to Mingtiandi’s request for comment.

The new fund with Far East Horizon Ltd, a financial leasing company backed by state-owned Sinochem Group, aims to secure wholesale land parcels at low prices that were already zoned for leasing development at the time they were sold.

Huang also revealed that Harbour is close to wrapping up the acquisition of two prime projects in Shanghai that will be developed into high-end housing. The executive said that Harbour also plans to venture beyond mainland China to launch apartments in Hong Kong in the “near term,” although specific locations have not been decided.

The company targets a platform of 80,000 units opened and under management by 2019, according to Gaw Capital’s corporate website.

Fund Investments Could Open ABS Funding Channels

Harbour previously failed in an attempt to secure approval to issue its own real estate investment trust (REIT)-like asset-backed security, falling short due to the company’s lack of fixed assets, according to the news account.

The company’s move into property ownership could enable Harbour to follow in the footsteps of a number of other rental apartment developers and operators in China who have taken advantage of government support for rental housing initiatives to gain approval for new securities. Beijing-based China Young Professionals Apartment Management Ltd successfully raised RMB 270 million via a REIT-like product last year, and Warburg Pincus-backed Nova Apartments also issued an asset-backed security last year.

Earlier this month, China Evergrande won approval to issue RMB 10 billion ($1.6 billion) worth of asset-backed securities linked to rental apartments, and in late April developer Country Garden sold off RMB 1.7 billion ($270 million) in securities backed by cashflows from its own rental housing initiative.