Warburg Pincus-Backed Nova Teams with Sunac for $3B Mainland Redevelopment Fund

One of China’s ten biggest developers is joining hands with a property management firm co-founded by US private equity giant Warburg Pincus in a RMB 20 billion ($3.2 billion) bet on redevelopment of commercial properties in China, as the country’s biggest cities run out of land for new projects.

A Shanghai-based Sunac unit has linked up with Nova Property Investment, to establish a fund to invest in acquiring and redeveloping office buildings, hotels and shopping centres in China’s first- and second-tier cities, according to statements by representatives of the two firms at a media briefing this week in Shanghai.

The duo will each take a 50 percent stake in the new fund manager, according to local media reports.

Sunac And Nova See Gold in China’s Aging Commercial Buildings

“We have now reached the end of the era of new land supply in China, as the cities of Beijing, Shanghai, Guangzhou and Shenzhen, along with key second-tier cities, have come into the age of redevelopment,” Sunac Executive Director Tian Qiang, said at the press conference for the new fund. Tian added that the lack of land for new projects, and the low value of many aging commercial properties creates opportunities for redevelopment.

Sunac and its partner will set up a platform to co-manage the projects acquired by the fund, and Sunac will develop and transform the properties. The fund is in the process of raising capital and is in talks with local and overseas investment institutions.

Nova Property Investment, co-founded by Warburg Pincus and Chinese entrepreneur Qian Wang in 2015, acquires properties with high growth potential for conversion into for-rent apartments and creative office spaces. Nova focuses on acquisition opportunities in Shanghai and other first-tier cities within the Beijing-Tianjin-Hebei and Pearl River Delta regions.

The company already owns 38 projects with a combined investment of RMB 8 billion ($1.3 billion) and a total area of 300,000 square metres, according to media reports.

Fast-Growing Builder Turns To Fund Management

Sunac is taking on the fund management venture after an acquisition spree that vaulted the Tianjin-based firm into the ranks of China’s ten biggest developers in 2o17. Thanks to that string of project acquisitions, the property developer controlled by tycoon Sun Hongbin recently announced a year-on-year surge of 88 percent in contracted property sales in February to RMB 19.11 billion ($3 billion).

Sunac joined an investor group led by Tencent to buy a 14 percent stake in Dalian Wanda Commercial Properties, which has a portfolio of nearly 240 shopping centres across China, for RMB 34 billion ($5.37 billion) in late January. Prior to that, Sunac agreed to buy a 91 percent stake in its 13 “Cultural Tourism City” theme park projects from the Dalian-based developer,

While Sunac’s purchases helped make it China’s fourth biggest developer in 2017, it also has become among the country’s most indebted. Sunac China had a 394 percent net gearing in the first half of last year.