Warburg Pincus Invests $183M in China Rental Apartment Platform

Warburg Pincus is betting on China’s rental housing market by redoubling its investment in a rental residence platform it co-founded, Shanghai-based Nova Property Investment. An affiliate of the global private equity giant is committing $183 million to Nova, aimed at fuelling the company’s aggressive expansion in China’s key urban centres.

As part of the deal, Nova’s management team will also invest an undisclosed amount in the two-year-old company that has emerged as a leading owner, operator and asset manager of rental apartments in China. Warburg Pincus made an initial investment of $170 million into Nova, which it co-founded with Chinese entrepreneur Qian Wang in early 2015.

The investment by the US private equity giant comes as China’s leadership pushes for the development of purpose-built rental housing as a solution to the rising cost of homes in China’s major cities.

Rental Housing Platform Eyes “Aggressive” Growth

“The follow-on investment of Warburg Pincus will provide strong support for us toward fulfilling our business targets as we continue to focus on expansion in the institutional for-rent apartment sector, a major force in the development and operation of aged and underutilized properties,” Wang, who serves as Nova’s chairman and co-CEO, commented in a statement.

Nova, which has assets under management of RMB 5 billion ($735 million) and 32 projects in operation or under development in Shanghai, is targetting rapid portfolio growth across first-tier cities. The company says it will focus on converting distressed properties into modern rental apartments, with amenities such as shared offices.

“We are very impressed with Nova’s outsized growth in just two years since the company was founded,” said Joseph Gagnon, managing director and head of Asia real estate at Warburg Pincus in the statement. “With a strong foundation in place, we believe there are significant future growth opportunities for Nova, driven by the increasing demand for better-served and quality for-rent apartment, creative and co-working office space in China.”

Nova, which merged with Shanghai-based Yicheng Property Investment in 2016, has a portfolio spanning 190,118 square metres in Shanghai. Properties operated or developed by the company under its BaseLIVING, BaseOFFICE and BaseCO brands include mid-to-high-end housing, co-living facilities, and creative co-working spaces.

China’s Bubbly Housing Market Spurs Leasing Demand

Warburg Pincus, which has invested over $3 billion in Chinese real estate companies, is an active player in the country’s nascent rental housing market. The US private equity firm partnered with China’s Avic Trust last year to pour nearly $300 million into Shanghai-based Mofang Apartment, which operates 30,000 rental units aimed at “white-collar” residents across the country.

The US private equity giant has reaped significant rewards from co-founding new property businesses in China, having previously teamed with Sun Dongping and Jeffrey Shen to set up logistics developer e-Shang in 2011. That warehouse builder is now part of regional logistics platform e-Shang Redwood, and Warburg also teamed with Sun Dongping to establish industrial developer D&J China.

Other real estate players looking to tap the emerging market for rental housing in China include developers China Vanke and Longfor Properties, which are aiming to build a combined total of 180,000 “youth apartment” units offered for lease over the next two years, according to Reuters.

China’s housing ministry last week announced a program to build rental housing on rural land in 13 major cities, including Shanghai, amid a government campaign to tackle a housing bubble and provide affordable dwellings for the public.