Warburg Pincus-backed Mofang Apartments has closed on a $150 million funding round, led by Canadian fund manager, Caisse de dépôt et placement du Québec (CDPQ), according to an announcement on Monday by the Shanghai-based apartment provider.
Mofang, which manages 70,000 long-term rental apartments across China, will be using the fresh cash to fuel acquisitions in the mainland’s rapidly developing rental housing sectors, as well as in developing a franchise business and for general operating capital, according to the company’s statement.
The rental apartment manager, which is operated by mainland hotel entrepreneur Alex Zheng, counts Warburg Pincus as its largest shareholder, has now raised a total of $550 million since opening for business in 2010. The investment by Caisse, which manages C$309.5 billion ($231 million) in net assets is the latest show of interest in China’s rental housing by a major international institution.
Building on a 20 City Portfolio
“Mofang is a promising company and is the leader in the long-term apartment rental market, whose team has strong expertise in operations, project development and M&A,” Lim Meng Ann, Head of Private Equity for Asia Pacific at Caisse said in a statement. The high level of public recognition and professional operational capability of Mofang has made it a success in 20 major cities across the country. We look forward to working alongside fellow investor Warburg Pincus as well as the leadership team of Mofang to further consolidate its industry leadership position.”
China’s rental housing market has grown rapidly in the past three years as the government has encouraged the sector as safety valve against rising home prices in major cities and to enable an increasingly mobile professional class.
Mofang, which previously raised $300 million from mainland fund manager AVIC Trust in 2016, has been using at least some of that cash to build out its portfolio of apartments, which are aimed at recent graduates and other professionals needing accessible housing from an organised service provider.
In first tier cities such as Shanghai and Beijing, the company’s rental units are available starting at prices of around RMB 5,000 ($745) per month, while in second or third tier cities its apartments can be leased for around RMB 3,000 per month.
Hotel Veteran Builds Rental Housing Business
“Mofang has helped to usher in a new era for accommodations solutions in China by transforming under-utilized properties into incremental rental housing for urban residents.” Mofang chairman Alex Zheng said. “Mofang will also seek to strengthen cooperation with government and other industry players, actively participate in the construction of urban apartments for professionals and operations of public rental housing, support entrepreneurship, and improve the living conditions of the city residents.”
Under its asset-light approach, Mofang typically takes long-term leases for entire commercial or industrial buildings from landlords, renovates them and then manages the leasing to tenants.
With startups crowding into the rental housing market in the past few years, Mofang has used its access to capital to acquire stakes in complementary players, including buying into Guangzhou-based Wowqu and Shanghai-based youth apartment provider V-Land within the last year. V-Land reportedly raised $200 million in a Warburg Pincus-led series A round which closed in April last year.
A former C-Trip employee, Zheng made his fortune by founding 7-Days Inn, one of China’s early budget hotel chains, which Warburg Pincus began backing in 2007.
Pursuing a Franchise Model
Unlike Warburg rental housing stablemates Nova in Shanghai and Weave in Hong Kong, Mofang has avoided putting capital into buying properties and more recently has begun pursuing a franchise model, which would allow it to partner with developers and local governments to expand its portfolio of managed properties.
“We are very impressed and satisfied with Mofang’s development in the last six years since we first invested in the company in 2013,” Warburg Pincus managing director Joseph Gagnon said in the statement. “Having a well-known and reputable investor like CDPQ will help Mofang accelerate its development and further consolidate its leadership position. Warburg Pincus will continue to support Mofang’s future development through various means, including real estate financing and property resources.”
In addition to its investments in Mofang, Nova and Weave, Warburg Pincus also last year joined a RMB 4 billion ($621 million) funding round for Lianjia-backed rental housing management firm Ziroom, according to local media reports at the time. Warburg Pincus led that investment together with Sequoia Capital China and mainland tech giant Tencent. Mainland property developer Sunac also joined the Ziroom funding round.
Monday’s statement by Mofang identifies the company as China’s largest institutional manager of apartments by the number of rooms on the market, with operations in cities including Beijing, Shanghai, Guangzhou, Shenzhen, Nanjing, Wuhan, Suzhou, Hangzhou, Chengdu and Xi’an. The funding was a series D round, and in addition to Warburg Pincus, Caisse and AVIC Trust, Mofang’s investors include Shanghai-based venture capital firm DT Capital Partners.