CPPIB Joins China Rental Housing Rush in $817M Deal With Longfor

Canada Pension Plan Investment Board has struck yet another deal with its favorite mainland developer, Longfor Group Holdings, as the Canadian pension fund manager and the Beijing-based builder today announced an agreement to jointly invest at least $817 million in building rental housing projects in China.

The new cooperation makes CPPIB the latest international institutional investor to pursue opportunities in China’s build-to-rent sector as the nation’s government encourages development of alternatives to home ownership in one of the world’s least affordable housing markets.

The new cooperation will invest in China across Tier I and core Tier II cities via developments, acquisition and master-lease of commercial assets to be converted into rental housing, according to a statement by the two organisations.

Canada Bets on China’s Rental Housing Market

“Demand for modern, quality rental housing amongst young professionals and new graduates in China is growing rapidly, and through this collaboration, we are pleased to have the opportunity to participate in this fast-growing sector of Chinese real estate and to further diversify our investments in the market,” CPPIB’s head of real estate investments for Asia, Jimmy Phua said in the statement. “We look forward to extending our partnership with a well-established and experienced operator like Longfor Group, particularly as we embark on our first dedicated rental housing investment in China.”

Longfor entered the mainland build-to-rent sector in 2016, but had built only 500 units by the end of 2017. However, by the end of last year, the company run by entrepreneur Wu Yajun had announced its intention to build 50,000 rental homes within the next three years.

During the last 12 months, some of the biggest developers and investors both globally and from the mainland have made investments in China’s build-to-rent opportunities, after the central government last August unveiled pilot programmes to build rental projects in suburban areas outside 13 major cities, including Beijing and Shanghai. The rental housing push fits into an ongoing campaign to ease the country’s housing supply crunch and curb rising home prices.

Rental Housing Deal Follows $965M in Retail Investments

The Sino-Canadian rental housing cooperation is the latest in a series of investments that CPPIB has made in the last four years.

In December 2014 CPPIB committed RMB 1.25 billion to a joint venture to develop Times Paradise Walk in Suzhou, and then added an additional $147 million investment into West Paradise Walk in Chongqing during 2016. In January of this year the Toronto-based organisation deepened the partnership by investing RMB 4.2 billion in two new mixed-use projects in the cities of Chengdu and Shanghai.

In total CPPIB has committed approximately $965 million to investments in Longfor’s China retail projects.

“Our cooperation with CPPIB continues to go from strength to strength, following on from our successful investments in retail malls and mixed use sites in Suzhou, Chongqing, Chengdu and Shanghai,” says Zhao Yi, Executive Director and Chief Financial Officer of Longfor Group. “With the precise positioning, brand reputation and efficient operation, we have made a strong start in the area of long-term rental apartments and expect to gain a strong foothold in this new, policy-supporting market.”

According to the statement, Pinnacle Real Estate Capital Partners assisted in setting up the deal and will act as the asset manager for the investment.