Just one year after kicking off fundraising for its first-ever strategy dedicated to Asian property investments, Warburg Pincus has surpassed its initial target by more than 86 percent to reach a final closing on $2.8 billion in equity for Warburg Pincus Asia Real Estate Fund, according to a statement today by the private equity firm.
The closing gives Warburg Pincus control over the second-largest opportunistic real estate investment vehicle currently active in Asia, after Blackstone’s $9 billion Real Estate Partners Asia III, with the Manhattan-based firm aiming to use the strategy to invest in real estate assets linked to the region’s “new economy”, including warehouses, data centres, IT offices, life science facilities and rental apartments.
“We are currently witnessing a once-in-a-generation change in real estate driven by technology where leading global investors are seeking to rebalance their portfolios by investing more capital into New Economy real estate where they have been meaningfully underweight,” said Jeffrey Perlman, managing director and head of Asia Pacific real estate and Southeast Asia for Warburg Pincus. “As a thought leader in New Economy real estate in Asia, Warburg Pincus is well-positioned to help investors tap into the firm’s expertise to gain this critical exposure going forward.”
Warburg Pincus, which has backed some of Asia’s most successful alternative sector plays, including rental apartment operator Weave Living, logistics group ESR and data centre specialist Princeton Digital Group, is putting these once-niche areas centre stage, while also targeting opportunities to redevelop and reposition assets such as hotels and shopping centres that have become obsolete or lost value due to shifts accelerated by the pandemic.
Originally launching the Asia Real Estate Fund in November last year with a funding target of $1.5 billion, Warburg Pincus later boosted that goal to $2.5 billion before wrapping up funding at $2.8 billion this week, the company said.
Limited partners in the real estate fund include participants in Warburg Pincus’s existing strategies, as well as new investors including public and private pension funds, sovereign wealth funds, insurance companies, endowments, foundations and high-net-worth individuals, the company said.
The firm attributes the strong response in part to its success in identifying emerging trends and partnering with local players to build their own opportunities. With the new fund focusing on asset-level acquisitions, Warburg Pincus will continue to deploy capital through its existing private equity strategies, including its China and Southeast Asia fund, which closed on $4.25 billion in equity in 2019, and its global growth fund, which raised $15 billion by the time of its final close in 2018.
“As a firm we have always been very thesis-driven, which allows us to identify fast-growing sectors early on and ahead of capital flows,” said Ellen Ng, managing director and head of China real estate for the firm. “Our ability to leverage insights of other sector groups in our private equity franchise has been a key differentiator as most deals now cross geographies and sectors.”
After co-founding what would later become Hong Kong-listed ESR in 2011 and partnering in the establishment of hyperscale data centre operator Princeton Digital in 2017, Warburg Pincus has focused on aligning its investment with technological change as a core element of its real estate strategy, both in backing firms set to ride growth waves and in identifying assets with redevelopment potential.
“Our understanding of where technology and healthcare are headed and impacting the use of real estate has anchored our investments to date and will continue to help us identify new angles to increase exposure in the New Economy asset classes,” Ng said.
Offices for the Internet
At the same time that it has been pursuing warehouse and data centre opportunities driven by the growth of internet use, Warburg Pincus sold all of its retail and commercial assets in China by 2015, the company said.
While the company continues to back commercial strategies in China and around the region, it is focusing on platforms ready to serve the tech sector, such as its recent investment in DNE, an $11 billion business park and logistics developer formed last week by the merger of D&J China and New Ease.
After having earlier co-founded both business park specialist D&J and logistics platform New Ease with mainland entrepreneur Sun Dongping, Warburg Pincus joined Swiss private equity firm Partners Group, US private equity shop StepStone Group and US venture capital firm Sequoia Capital in investing in the newly merged entity, according to an announcement last week.
The company now says that more than two-thirds of its real estate portfolio is exposed to the new economy segment.
New Areas of Focus
While Warburg Pincus has notched some of its best-known real estate wins in China, Perlman made clear that, while the mainland will continue to be its largest market, the new fund is following a pan-Asia Pacific strategy, with investments expected in markets including Southeast Asia, Japan, Korea and Australia.
As it expands its geographic scope, the company is also seeing opportunities in new sectors, including the life sciences field, with Perlman noting that the company began investing in real estate strategies targeting the fast-growing segment more than four years ago with D&J, now part of DNE, having taken a leading role in accommodating China’s fast-growing biomedical sector.
“D&J probably has the largest life sciences portfolio in Greater Shanghai, and it has been a real focus of ours over the past four or five years,” Perlman said. He pointed out that, over the past four years, China’s biotech sector has gone from an aggregate market capitalisation of less than $20 billion to more than $200 billion today, and that with this growth the companies in the sector need more space for both laboratories and for offices.
Already the newly merged DNE counts among its biomedical tenants international pharmaceutical and lab equipment supplier Sartorius, Johnson & Johnson research unit JLABS and biomedical engineering firm Illumina.