Exclusive – Kailong Reaches $500M Close of Greater China Real Estate Fund II

Fund manager Kailong Real Estate Investment has reached a $500 million closing on KaiLong Greater China Real Estate Fund II, its latest US dollar value add fund, according to a senior executive of the Warburg Pincus-backed firm.

The company, which had originally been targetting $400 million in equity for the fund, has now boosted its fund-raising goal to $550 million, according to Don Tan, executive director for fund management at Kailong.

Having already invested in three projects in the region – one each in Hong Kong, Shanghai and Guangzhou – the 15-year-old firm expects to reach a final close on the Greater China fund within six months as it continues to identify potential commercial real estate acquisition opportunities in core locations of Greater China’s first tier cities, according to Tan.

Looking for More Value Add Deals

“We are appreciative to our new and existing relationships forged with our capital partners, and the support given to the successful fund raising,” Tan said with regard to the company’s financial milestone. He added that the higher than expected investor response can be seen as a testatment to Kailong track record in Greater China real estate investment.

Kailong had begun fund raising for its second Greater China US dollar fund one year ago to follow up on the success of its first fund in the series which reached a final close of $238 million in May 2015.

Like the earlier fund, Kailong’s new vehicle focuses on value-add real estate investments in the region, with a special focus on office assets. Among the acquisitions so far, the Hong Kong and Guangzhou properties are both office properties, while the company acquired a retail podium in Shanghai which it plans to convert into office space.

The company has now deployed 40 percent of the funds raised and anticipates pushing that figure beyond 50 percent as it looks forward to more acquisitions within the next three months according to Tan.

Re-Enlisting Old Friends

With co-investments Kailong’s initial US dollar fund invested some $270 million in eight deals across Greater China – three each in Hong Kong and Shanghai, and one each in Beijing and Dalian.

Many of the investors from the earlier fund are understood to have re-upped for this follow-on vehicle with the pooled capital coming primarily from European institutional investors and some Asian funds.

In October last year European insurance heavyweight Allianz announced that it had taken a 35 percent share in KaiLong Greater China Real Estate Fund II, which at a total capitalisation of $550 million would amount to $192.5 million.

Earlier Fund Averaged Over 20% Returns

Among the success stories for the original KaiLong Greater China Real Estate Fund was its acquisition of a hotel on Shanghai’s Yunnan Lu in 2015, which Kailong’s team renovated and leased to WeWork, before re-selling the property to Hong Kong-listed Tianli Holdings within eighteen months of the original purchase of the asset.

Kailong is said to have originally purchased the hotel for around RMB 260 million ($38.8 million) in March 2015 before selling to Tianli in November 2017 for a price now believed to be RMB 520 million.

The original KaiLong Greater China Real Estate Fund is on track to divest its remaining assets, according to Tan, who expects the fund to achieve returns in excess of 20 percent.

In addition to its two US dollar funds targetting Greater China, Kailong in 2015 raised GBP 13 million for an outbound investment fund focused on UK opportunities, and has a set of five RMB denominated China real estate funds which collectively raised RMB 2.8 billion.

In 2017, the company raised HK$1.2 billion for a pair of Hong Kong dollar funds and, to date, Kailong has invested a total of over US$2.9 billion in 49 real estate projects, according to its website.