US private equity giant The Carlyle Group has taken a bet on China’s growing rental housing sector by investing in Shanghai-based corporate housing operator Anxin Apartment. Carlyle announced that it had acquired a “significant minority stake” in the mainland firm, with equity for the deal provided by two of its funds, Asia Growth Partners V and Beijing Partners Fund II.
Founded in 2014, Anxin Apartment operates over 160 apartment complexes across 50 cities in China, providing affordable housing for the employees of around 2,000 corporate clients. The company founded and led by hospitality management veteran Xu Zaoxia had previously raised a total of RMB 423.8 million ($60 million) prior to Carlyle’s series C funding round, according to Crunchbase. Financial details of this latest investment were not disclosed.
The deal comes after Carlyle, which has some $222 billion in global assets under management, spun off its China real estate unit into a separate entity tailored to the mainland market late last year.
Investing in Shelter for Service Workers
Dennis Wang, managing director of Carlyle’s Asia Buyout advisory team, noted in a statement that Anxin is a fast-growing player in China’s affordable corporate housing segment.
“The increasing number of workers in the service sectors moving to first-tier and second-tier cities in China has generated strong demand for well-run affordable housing solutions in these cities,” Wang said. “With an experienced management team, a proven business model and solid operational know-how, Anxin is well-placed for further growth in this market.”
Xu added that the company would leverage Carlyle’s resources to accelerate the growth of its platform and enhance its branding and customer relationship management system. Anxin currently has apartments in Shanghai, Beijing, Qingdao, Nanjing, Changsha, Wuhan, Shenzhen, Guangzhou, Fuzhou and Hangzhou, its corporate website indicates.
Previous funding rounds in the company were reportedly led by mainland private equity firms Qiming Venture Partners, PCP and East Fuhai. In May of this year, Anxin made a strategic acquisition of Home Inn’s Comma Apartment brand.
Another Twist for Chinese Rental Housing
NASDAQ-listed Carlyle established a permanent presence in China in 2004, and within the real estate realm has previously invested in office, retail and logistics opportunities, alongside its growth and buyout strategies. All told, the company has poured a total of $9.5 billion of equity into more than 100 transactions in China as of September 30.
Through the latest deal, Carlyle gains exposure to a sector with attractive growth potential — but also one that has displayed turbulence in recent months. China’s largest real estate brokerage, Lianjia, reported that the country will eventually have 300 million renters, generating a RMB 5 trillion rental housing market. The industry’s rapid expansion has spawned some 1,000 competing operators, many of which have floundered into legal and financial troubles.
At least 20 rental housing startups have defaulted or shut down since the beginning of 2018, including Nanjing-based Lejia, which ceased operations this past August after building a platform of 100,000 listings across eight cities.
Despite the struggles of some players, the sector continues to attract venture capital investment. Ziroom, the country’s first rental housing unicorn and a unit of Lianjia, was reported in June to be completing a $500 million series B funding round.