SilkRoad Reaches $144M First Closing of Asia Core Fund on Way to $400M Target

SilkRoad Property Partners has reached a $144 million first closing on its first ever core-plus Asia real estate fund, which brings the Hong Kong and Singapore-based fund manager nearly halfway to its target of raising $400 million for the vehicle targeting stabilised assets by next year.

The new open-ended core strategy will be investing in mature and pandemic-resilient properties across Singapore, Hong Kong, Japan and eventually China, with SilkRoad shaping its strategy around sectors benefiting from the post-pandemic recovery, such as logistics, multi-family, senior living, retail and tech-driven assets, according to a news release on Thursday, after the news was first reported by PERE.

Speaking to Mingtiandi on Thursday, SilkRoad chief executive Peter Wittendorp said the core-plus fund is being seeded with three logistics and industrial assets in Hong Kong with the private equity firm aiming to add more properties. While SilkRoad declined to specify any target assets, Wittendorp said the company is “actively pursuing” a portfolio of service and convenience retail assets in Singapore while also working on acquisitions in Japan.

“This is a high conviction strategy, based on our own operating experience in these markets and asset classes,” Wittendorp said in the statement. “We look to leverage our sourcing and asset management capabilities honed from years of successfully investing the SAVP series to create value.”

Japan, Singapore Up Next

The core strategy is being rolled out a little over a year after the regional firm reached a $549 million final closing on Silk Road Asia Value Partners II (SAVP II), with SilkRoad positioning the new vehicle as a way to take advantage of additional opportunities beyond the scope of its traditional value-add strategy to seize opportunities to invest in more mature assets that generate stable revenues over the long term.

Backed by new investors which the firm declined to identify, Wittendorp said SilkRoad is aiming to raise around $350 to $400 million for the core fund within the next two years and expects to eventually grow its gross asset value to $1 billion over the long term. The fund has a long-term return target of 8-10 percent annually on 50 percent leverage.

“[The seed assets are] younger vintage than the other things that we acquire with fairly strong, longer tenancy roster, core type of things, that wouldn’t qualify for a value add fund because that’s a different risk return profile altogether,” Wittendorp said, noting that SilkRoad expects to secure its seed portfolio within the next three to four months, with deals in Japan and Singapore predicted to follow thereafter.

“At a later stage we’ll probably add China to the mix, but that will come at a later stage. So [the focus is] more on liquid markets and cash flow distributable markets because it’s a core product after all. They (investors) look for distribution yields, not for capital gain per se,” Wittendorp added.

SilkRoad has been advised on the fund raising by Rivier Global Capital Advisors and Dechert LLC, with Ocorian acting as the main service provider for the fund.

Beyond Value-Add

Having transacted over $3 billion in real estate for the past decade, SilkRoad had previously stayed on a strictly value-add track since the company was founded in 2012, with the third edition of its strategy closing nearly 10 percent above the firm’s original $500 million fund raising target.

The $549 million raised for the third fund was more than 23 percent above the $350 million in subscriptions for the firm’s SAVP II strategy, which hit its final closing at the end of 2020.

While SilkRoad has been busy buying up industrial assets in Hong Kong, including purchasing the Smile Centre in Fanling for $41.4 million one year ago, and paying $167.1 million in October to purchase the Hang Wai Industrial Centre in Tuen Mun, Wittendorp indicated that both of those acquisitions were on behalf of the firm’s value-add strategy.

SilkRoad’s net operating income and the valuation of its portfolio both grew in 2020 and 2021, according to its statement, with the firm having divested four assets in the past two years at prices that exceeded their underwriting.