China’s Kailong Exploring $757M Singapore REIT

Shanghai-based real estate private equity firm Kailong plans to turn its portfolio of Shanghai business parks into a S$1 billion ($757 million) real estate investment trust (REIT), according to recent reports in the international press.

Funds managed by Kailong Real Estate Investment have been acquiring and developing commercial properties in suburban areas of Shanghai, and has built a portfolio of nine projects catering to corporate tenants who need large footprint spaces at rents lower than those available in Shanghai’s increasingly expensive downtown districts.

According to an account in the Wall Street Journal, Kailong, which was founded by a veteran executive of Hong Kong’s Shui On Land, began planning the Singapore REIT-listing after unsuccessfully shopping its commercial portfolio to other investors.

Kailong Bought Up 9 Parks Around Shanghai

After earlier making a number of investments in residential, retail and downtown office projects around China, Kailong began focusing on business park projects in 2011, acquiring and developing 11 projects in Shanghai and Beijing.

Since that time, the company’s RMB and US dollar denominated funds have sold off all of the Beijing assets, and retained several properties in Shanghai. The company’s website lists nine business parks currently under management in the city’s Xinzhuang area in Puxi, Jinqiao and Zhangjiang High Tech Park in Pudong and in the Nanhui area.

The projects together total more than 242,000 square metres of office space, and have been promoted and marketed on China real estate platform RightSite.asia. (RightSite.asia is a sister company to Mingtiandi.com).

According to a company statement, Kailong also acquired a 12-storey hotel near Shanghai’s People’s Square during March, which is plans to convert into a boutique office tower.

Investments Came from RMB1.5 in Funds

Kailong built its business park portfolio with RMB 1.5 billion that the company raised since 2010 through four RMB funds. Kailong also launched a $300 million US dollar fund in 2013.

According to Kailong’s website, the company has acquired 24 real estate projects with a total investment of over RMB 8.4 billion, with 12 of these assets having already been sold off to new buyers.

Office space in mature business park’s such as Kailong’s typically rents for RMB 4.5 to RMB 6.00 per square metre per day, according to Michael Stacy, who heads the Tenant Advisory Group at global real estate consultancy Cushman & Wakefield. However, Stacy, who is an Executive Director with the US-based firm cautions that in the coming years, “There will significant competition within Shanghai’s business park and decentralized market due to an increase in supply. These buildings will be competing against themselves for tenants.”

By listing the company’s business park portfolio as a REIT in Singapore, would allow the private equity firm’s funds to exit from the investments by selling them off to retail investors on the stock exchange.

Kailong has engaged Standard Chartered Bank to assist with the listing, which remains in the planning stages and does not yet have a clear schedule.

Mainland REITs, while long-anticipated have yet to become a practical reality due to delayed development in the regulatory and financial frameworks necessary to support the investment products.