Warburg Pincus-backed D&J China Buys 40% Stake in KaiLong

US private equity giant Warburg Pincus last week followed up on its successful investment in logistics developer e-Shang Redwood Group, by acquiring a 40 percent stake in Shanghai-based value-added real estate investment firm Kailong.

The alternative investment firm paid an undisclosed sum for its stake in Kailong through its majority-owned subsidiary, D&J Industrial Property (China) Investment Co, according to a statement from the three companies.

Like D&J, Kailong has focused on opportunities in China’s business park sector, and the firm, which was founded in 2004 by former Shui On Land executive Hei Ming Cheng, has also been successful in raising RMB-denominated funds from high net worth mainland individuals via domestic asset management firms.

The investment in Kailong came just one week after the Shanghai investment house announced its second set of acquisitions in London.

Developer Connects with Value-Add Investor

The investment by D&J offers appears to offer synergies for two firms focused on different aspects of China’s business park sector.

After raising four domestic funds totaling RMB 1.5 billion, and receiving investment from Hong Kong-based alternative investment house PAG, Kailong has built a portfolio of suburban business park assets around Shanghai, and relied on its operational expertise to reposition the assets to achieve value-added returns.

The company has also acquired a downtown office building in Chengdu, as well as having bought and disposed of the Jin Lin Tiandi retail complex in Shanghai, among other mainland projects.

“The partnership brings together two best-in-class teams in China’s real estate sector with complementary development, asset management and fund management capabilities,” Ellen Ng, Managing Director of Warburg Pincus, said in reference to the transaction.

D&J has taken a more development-focused approach to building its business park portfolio; purchasing land, designing and building suburban facilities aimed at high tech occupiers in Shanghai, Nanjing, and other locations. The company, which was co-founded in 2014 by e-Shang Redwood Group chairman Sun Dongping and Warburg Pincus, has also built and is currently leasing standard manufacturing facilities in Changzhou in Jiangsu province.

“Aligning with such reputable partners will provide valuable resources to further accelerate our growth. D&J China has strong development capabilities while KaiLong has a long track-record in onshore/offshore fund raising, asset acquisitions and operations,” noted Kailong founder and CEO Hei Ming Cheng.

Warburg Pincus Follows E-Shang Success by Linking Biz Park Platforms

Warburg Pincus and D&J made the investment in Kailong less than two months after the private equity investor and co-founder Sun Dongping committed another $220 million to expand D&J. The B-round financing, which was announced in late February, brought total investment in D&J by the two partners to $420 million, and came just one month after e-Shang merged with the Redwood Group.

The e-Shang Redwood Group merger, and the company’s subsequent attempts to acquire warehouse assets in Australia, have been aimed at a 2016 IPO said to be targetting a valuation well north of $1 billion, and the rapid expansion of D&J’s holdings could point to IPO hopes for this second industrial real estate investment by Warburg Pincus and Sun.

“The partnership with KaiLong will add scale and investor relationships as well as operational expertise to the team, and I look forward to finding synergy with the KaiLong team on new projects,” Sun noted in a statement regarding the Kailong investment.

D&J explained that the partnership will allow the two companies to share resources in the industry and combine their capabilities in development, asset management, financing and fund management.

Since its founding less than two years ago, D&J China has quickly built a portfolio of about 1 million square meters of properties in operation and under development. The developer counts among its tenants Fortune 500 multinationals such as Shell, Abbott and FMC, as well as high-tech, knowledge economy companies including Asiainfo and iSoftStone.

Even before co-founding e-Shang and D&J, Warburg Pincus had already established an enviable track record in China’s property sector. Including its stakes in Kailong, D&J and e-Shang Redwood Group, the growth investment specialist has made equity investments of more than $2.4 billion in 20 companies and projects in China including 7 Days Inn, Greentown, Guangzhou R&F, Franshion Properties, Mofang Apartment, Red Star Macalline and Sunshine 100.

KaiLong Scores in London and Back Home in China

For KaiLong the D&J investment is its second April victory, following the company’s announcement on the 14^th of a set of London acquisitions and an interim close of ₤24 million ($34.6 million) on its KaiLong Greater London Commercial Real Estate Fund II.

As in its China investments, KaiLong is pursuing value-added opportunities in London. “Our approach is to work with our local partner in London to identify underused assets for acquisition, and then reposition these properties for improved investment yields,” KaiLong Managing Director Ivan Ho told Mingtiandi.

The funds raised through this second Kailong outbound fund were used to purchase three office assets in London: two in the City of London financial district and a third in the central district of Southwark. With this latest set of acquisitions the total value of KaiLong’s assets under management in London now exceeds ₤100 million ($142 million), the company told Mingtiandi.

KaiLong Greater London Commercial Real Estate Fund I also targetted value-added office investments, and acquired one London office asset as proof of KaiLong’s ability to execute deals in the UK.

With the interim close now established, Ho told Mingtiandi that KaiLong’s China fund-raising team is in the process of raising capital for further acquisitions in the UK from investors in China and other Asian locations.