Kailong Raises $575M for Greater China Real Estate Fund II

Kailong paid a reported RMB 700 mil for the Jiajie International Plaza shopping centre in Shanghai

Kailong Real Estate Investment has announced that its second US-dollar denominated, China-focused property fund has reached a final close of $575 million — more than 30 percent above the fund manager’s original target.

The announcement comes six months after the Warburg Pincus-backed company revealed that it had enlarged its target for Greater China Real Estate Fund II to $500 million after originally aiming for $400 million in funding.

European insurance titan Allianz has signed on as the fund’s anchor investor, and the Hong Kong-based firm has also secured commitments from pension funds, multi-managers and family offices, as well as other insurers.

“We have been delivering our targeted returns since 2004 and expect to continue to achieve these returns by applying the value-add strategies created by our vertically integrated 65-plus person team in Shanghai,” said Kailong’s founder and chairman Hei Ming Cheng.

Focusing primarily on office opportunities in Greater China’s first tier cities, the 15-year-old firm said in February that it had already deployed over 30 percent of the fund and expects returns of 18-20 percent.

“We have a pipeline of another three assets in the commercial space close to completion – one in Beijing and two in Shanghai – that should take us to a little over 50 percent deployed in the very near future,” Kailong’s managing director Thaili Chi told Mingtiandi.

Target Raised After Strong Investor Support

In March, Kailong’s executive director for fund management, Don Tan, told Mingtiandi that, after kicking off fund raising in February 2018, the company had enlarged the vehicle’s hard cap following stronger than expected demand from investors.

Tan confirmed at the time that the investment vehicle had already invested in three projects, including office properties in Guangzhou and Hong Kong, and a retail podium in Shanghai that Tan said the company plans to convert into office space.

Allianz announced in October last year that it had committed to taking a 35 percent stake in the closed ended fund — an investment then estimated at around $175 million — as it continued to implement its strategy of allocating around ten percent of its global real estate portfolio to Asia Pacific.

Kailong’s managing director Thaili Chi said the fund is in the process of acquiring three other assets

That October investment was announced soon after a fund managed by Kailong in September last year paid a reported RMB 700 million ($99 million) to purchase the Jiajie International Plaza shopping centre in Shanghai’s Hongkou district from Shenzhen-listed developer Calxon Group. Kailong says that it is currently repositioning that retail property for office purposes.

In addition to the Shanghai property, Kailong by February had purchased office assets in Hong Kong and Guangzhou through the new fund, with the company expecting to close on more acquisitions in the near future.

Building on Returns From Earlier Fund

The investment vehicle follows on from the first iteration of Kailong’s US dollar fund series, which closed on $238 million four years ago, with many of the European institutional investors and Asian funds from the earlier vehicle understood to have re-upped for Greater China Real Estate Fund II.

With co-investments bringing its total commitments to $270 million, Greater China Real Estate Fund I invested in eight deals across Greater China. Over the past year and a half Kailong has also been divesting from assets acquired through that earlier US dollar vehicle and other funds.

Just six months ago the company sold off a renovated floor in Hong Kong’s Yue Thai Commercial Building for HK$31.4 million as part of a strata-title sales strategy after buying the 25-storey building two years before for a reported HK$380 million.

Three months before that deal, a Kailong–Goldman Sachs JV sold another upgraded asset – the ZLink office in Beijing – to Allianz in a deal valued between $185 million and $196 million after the joint venture had bought it for S$160 million two years before. Kailong retained a two percent interest in the asset as part of the deal.

In a move that showed Kailong has interests beyond offices, the company signed a strategic partnership with Beijing Enterprises Real Estate just under a year and a half ago to develop warehouses.

A Kailong representative told Mingtiandi at the time that the company was targeting logistics because it was a sector in which demand outstripped supply.