Gaw Capital in $800M China Rental Apartment Venture with SCE

Hong Kong private equity firm Gaw Capital and property developer China SCE Group Holdings have agreed to establish a long-term rental apartment investment platform in China backed by initial funding of $800 million, China SCE has announced.

The joint venture aims to acquire, develop and operate multi-family residential projects in China’s core cities, according to the announcement, with China SCE’s Funlive Holdings unit responsible for acquisitions and disposals under the fund, as well as managing the platform’s assets.

The deal is the second major investment by Gaw in a mainland rental housing operator, and allows Funlive to expand its operations in the country.

Starting Off With a Shanghai Project

The partners have seeded the venture with an initial 20,000 square metre apartment building in Shanghai, which is planned to yield 500 apartments when it is finished in 2020. China SCE says the new venture is aiming to have RMB 10 billion ($1.45 billion) in assets under management by 2021, and will continue to scour China for more investment opportunities.

Huang Chaoyang, CEO of Shanghai-based China SCE Group, said the company was “optimistic about the long-rental apartment industry and regard it as the most important property category for investment.

“Through cooperation with Gaw Capital, we hope to increase the scale of our investments,” he added. In 2017 China SCE had signed an MOU for potential cooperation with US multi-family heavyweight Greystar on the mainland, however, the local developer ultimately decided to pursue its own projects independently.

Expanding a 10,000 Unit Platform

Funlive was established by China SCE Group in August 2017 and earlier this month, the firm opened its flagship location in Shanghai’s Minhang district, the Funlive China SCE International Apartment Plaza, which offers 805 high-end rental apartments and is a 10-minute drive from Hongqiao International Airport.

Funlive currently manages over 10,000 apartments in six cities, including Beijing, Shanghai, Hangzhou, Quanzhou, Jinan, and Nanjing. Through its partnership with Gaw, Its aim with the involvement of Gaw is to become one of the top five apartment operators in China.

Gaw Goes for More Mainland Rental Apartments

This is not Gaw Capital’s first foray into China’s long-term rental apartment market, and its expectations are for substantial growth. “We believe that China’s long-term rental apartments will have great demand, especially in first-tier and core second-tier cities,” said Joseph Chan, Gaw Capital’s managing director for investment.

Gaw announced last September that a fund it manages had invested in Harbour Apartments, a Shanghai-based company that operates “co-living” apartments aimed at young tenants in seven major cities across China. Its investment formed part of a Series A round of financing that brought the Harbour Apartments project a total of RMB 400 million.

Finding Deep Pockets

For China SCE Group, to get Gaw Capital involved in its long-term rental house business is part of its “asset light” financial plan of finding deep-pocketed partners for its projects — a tack several mainland developers and property firms, including Dalian Wanda Group, have taken to bring down debt loads.

China SCE Group says it raised RMB 17.1 billion in investment funding in the first half of 2018. The developer, which aims to increase its annual contracted sales to RMB 100 billion in three years from RMB 33.247 billion in 2017, has seen its debt ratio increase from 69.2 percent in the middle of this year to an estimated 80 percent to 90 percent current, according to the company.

Editor’s Update

An earlier version of this story indicated that Funlive was backed by Greystar. It is now noted that the proposed cooperation between the two parties was never implemented.