Vanke, the country’s largest property developer by revenue, is holding discussions with private equity giant Blackstone Group about a real estate fund to pursue opportunities in China’s logistics real estate sector, a senior company official revealed over the weekend.
The company also intends to expand into more overseas markets, following its recent forays into US luxury housing.
Speaking to the local press in a group interview, Vanke Executive Vice President Mao Daqing said the company has an unfavorable view of the residential market in China this year, and would be turning to the warehouse sector, where yields and demand have remained strong.
The rapid expansion of China’s retail industry, particularly the boom in ecommerce, has fueled demand for international grade logistics properties, and warehouse development has drawn significant investor interest in recent months.
In February, a Chinese consortium invested $2.51 billion into leading regional logistics developer Global Logistics Properties (GLP), and during December, Goldman Sachs agreed to provide a US$120 million pre-IPO loan to Shanghai-based start-up warehouse developer e-Shang.
Those warehouse investments were presaged by a pair of private equity deals last year when Sam Zell’s Equity International announced a strategic partnership with The Redwood Group to invest in logistics developments in China, and Carlyle Group agreed to invest up to US$400 million in a joint venture with local logistics developer Yupei.
Vanke Skeptical on Local Housing Market
“There could be a problem with China’s real estate sector this year” caused by developers overbidding for land, and home prices climbing beyond the reach of buyers, Mao was quoted as saying in the China Daily.
However, the real estate executive clarified that he did not see China as on its way to a real estate crisis, adding, “A collapse of the whole market is unlikely, and problems will occur mainly with small developers with limited financing channels.”
Looking for Deals in the UK, Australia and Singapore
Mao also explained Vanke’s controlled internationalization strategy, particularly compared to more aggressive competitors such as Shanghai’s Greenland Group.
“We will only go to mature markets with strong local partners, even though the profit margins there may be lower than in emerging markets,” Mao added. In the US Vanke recently broke ground on a 61-storey luxury residential tower in Manhattan that it will develop together with US developers RFR and Hines, as well as receiving financing through investment fund China Cindat. Last year the developer started work on a San Francisco project with US developer Tishman Speyer.
“Vanke is also seeking opportunities in the United Kingdom, Australia and Singapore,” Mao said. Vanke’s preference for partners is in contrast to Greenland and Dalian Wanda, both of which have tended to acquire early stage development projects which they will try to execute on their own, apparently in search of higher rates of return.