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"Buy when the valley is low and sell when the peak is high." This golden rule of the investment industry has become a new opportunity for some people during the downturn of the real estate industry.
Discounted and depressed real estate has become a nightmare for real estate developers, but for others, this may be an opportunity: real estate PEs who have profited from the ups and downs of the real estate industry. More people are joining the real estate PE team.
Shang Zhe (pseudonym) decided to invest in a third-party RMB real estate fund. His previous experience includes foreign asset management companies, "involving the custody and management of properties"; also involved in the first Chinese-foreign joint venture real estate fund in China. Developer-oriented "; also worked in a foreign currency real estate fund. The sponsor of this third-party real estate fund is a listed company in the well-known real estate service industry.
Shang Zhe, who is now a partner, is registered in Tianjin. The first fund successfully raised exceeded US $ 200 million. "Being a RMB real estate fund, the environment is better now," Shang Zhe said. No mature country has the same demographic dividend as China.
Zhang Mingeng, chairman of the National Real Estate Investment Fund Alliance and chairman of Shengshi Shenzhou, explained that "urbanization is entering the second wave" is bound to promote the sustainable development of real estate. At present, China's urbanization rate is about 50%, and the corresponding data in developed countries is 75%. In other words, China's urban population will increase by about 500 million in the future.
It is not only Shang Zhe who is so determined. "At the beginning of the year, many PE funds have plans to set up real estate funds," according to a person close to real estate PE in the industry. Statistics show that as of the end of the third quarter, 22 newly-raised real estate funds and 3.225 billion US dollars were raised. How many real estate funds are there in China? No one knows the exact data. Cao Shaoshan, chairman and president of Heshan International Capital Group Co., Ltd., said the industry estimate is more than 200.
The thirst for real estate under the control of the real estate industry is also an important reason why businessmen and philanthropists have gone to sea. One case is that in early September, Sino-Ocean Land announced the joint establishment of a real estate fund and joint venture entity with KKR, intending to serve as an investment platform for the company to invest in certain real estate projects.
Shang Zhe admits: Now there is a lot of room for project selection, and the total size of the project pool accumulated by the funds it hosts has exceeded 2 billion yuan. "The ability to make money and have the ability to choose a certain project" can make money. Another person from the same real estate fund in Tianjin said that almost every real estate fund currently active in the market makes money, "more or less." For example, a real estate fund in Shanghai claims that its annual rate of return is as high as 50%.
However, Shang Zhe still faces such a problem: before the real estate fund with the background of brand real estate developers, and later PE institutions joined the war circle, how can an independent third party like him be able to break through the encirclement?
Real estate PE is at the right time?
The first question to Shang Zhe is that, whether in a foreign-funded fund or a real estate fund with a real estate developer background, he should be well-mixed. Why should he do it alone? Is the RMB real estate fund really the right time?
"There are quite a lot of restrictions on foreign investment in real estate investment in China." Shang Zhe has a deep understanding of this: First of all, real estate investment is a restrictive industry for foreign investment, and the reaffirmed real estate restrictions also set up obstacles for foreign funds to hold domestic properties; "It's not impossible to do", but even if the investment amount is less than 100 million US dollars, it is quite troublesome to report directly to the local Ministry of Commerce for approval. The domestic approval requirements for setting up an offshore structure also make the establishment of new projects possible. There is less sex, and it is also very troublesome to expand and change existing projects.
According to sources close to it, Carlyle had little action in China's real estate sector since it bought and sold 110 villa projects in Shanghai in late 2006. It has recently completed the raising of a real estate fund with a total value of more than US $ 1.6 billion, "mainly investing in European and American markets." Shang Zhe believes that the prices of European and American real estate industries have reached the bottom after successive crises, and foreign funds can play a more important role in such a mature financial market.
Funds of the brand developer model have obvious advantages. "For example, many investors tend to invest in such funds because they have brands." Cao Shaoshan explained that the source of the project is guaranteed, the project revenue is guaranteed by the group, the project supervision cost is low, and the decision-making process is relatively simple. But the other side of the coin is whether the managers of such funds are responsible for the company ’s shareholders as developers or social investors? Will it become a financing platform for developers? "If you want to do fund for a long time, this is a problem that must be solved." Shang Zhe said.
This is not groundless. A real estate fund person from a Guangdong-based brand pointed out that many investors have such doubts when financing. "We have an internal agreement that all shareholders do not use the money of the fund; if it is necessary, we need to add 5 more points on the basis of the cost of funds in other channels." But there are still people who doubt that when the bank loan interest is less than 6 At the time, the cost of financing more than 35 points from the fund is naturally expensive. "Now that you can't get money from the bank, can you persist?"
Shang Zhe runs away from foreign and real estate brand funds. It is true that these two types of funds have their own disadvantages, but the more important thing is to "build a brand." Shang Zhe said: Among the "second echelon" real estate funds including Shengshi Shenzhou and Heshan International, "the top ten brands have unlimited future prospects."
The data in a real estate fund's financing manual can be corroborated. It quotes data from Russell Investment Group that real estate investment is an important type of asset allocation in mature markets. Institutional investors in North America and Europe invest in real estate. It is basically stable at 7% to 10% of its total assets, North American institutional investors ’capital allocation in the PE field is only 7%, and European institutional investors’ assets allocated to the PE field account for only 4% to 5% of their total assets. . Taking Japan as an example, institutional investors in the Asia-Pacific region have increased their investment in real estate from 3.4% in 2005 to 5.7% in 2009, and their investment in PE has fallen far behind.
But whoever wants to share a piece of this big cake, "has to establish his own trackrecord (historical performance)", Shang Zhe said, while the overall situation is undecided, everyone has a chance. Therefore, as early as 2009, Dinghui Investment and Pukai Investment began to test the real estate fund.
Real estate fundraising dilemma
This fund first found Shang Zhe because he valued his rich experience in the middle and back office, and he was very familiar with the financing process and financial structure.
Behind this is the difficulty of raising real estate funds in the country. "The average size of each fund is only 300 million or 400 million yuan." Shang Zhe said that funds with a size of more than 1 billion yuan like them have already been regarded as "must "". Only about half of the more than 200 so-called real estate funds in the country have “investedâ€. It is estimated that these real estate funds can contribute only about 50 billion yuan to the Chinese real estate industry, and the total amount of funds used for real estate development in 2010 was between 2 and 3 trillion.
"The lack of institutional LP is the main reason." Cao Shaoshan, chairman of Heshan International, said. For this industry subject to strict regulation, "insurance funds and social security are not willing to intervene easily." Industry insiders analyzed that the lack of access to investment decision-making committees has become an important reason for state-controlled institutions to intervene in real estate funds.
"Every investment must participate in fund management," a Beijing-based real estate fund official said that this is a headache for the entire industry. "The real breakthrough in the country so far is Cameron", the partner of Pukai Investment who is responsible for real estate investment can achieve "all investors are outside, and the project is managed by Pukai".
Previously, the fund where it worked had cooperated with a local government to form a 3 billion yuan fund for the reconstruction of the old area, and the fund management companies invested 50% to establish each. However, the structure of the fund is "not quite the same as the original design": after the fund is raised, the developers who invested in the fund are very enthusiastic, "all want to use this money for their own project transformation"; The government cooperates, and the market price of the land is not as expected. There are some agreements between the government and various developers, with some preferential conditions attached. "So in the end the fund was divided into several." The above-mentioned person said, "One project per block, there are 1 to 2 investors to form an exclusive small fund."
Shang Zhe's fund also turned to "high-net-worth individuals", partly raised through trusts and private banks of various banks. However, this is not easy. In October, the CBRC suspended the approval of trust products for real estate funds. Trusts were previously the main source of real estate funds. Taking Beijing International Trust as an example, real estate trusts accounted for about 20% of the company's overall business. From the trust products issued from September 19 to 25, 2011, the largest financing scale is still the real estate trust business, with a total of 1.472 billion yuan raised in 7 products, accounting for 50.41% of the total issued scale. Among the clients of private banks, there are only a few people who intend to invest in real estate funds.
With the high financing costs of real estate companies, the financing costs of real estate funds are also rising. It is understood that the current IRR expectations of high-net-worth individuals for real estate funds are generally around 20% to 30%, and the requirement of 8% capital preservation income is almost an industry practice. Shangzhe designed the structure for his fund with 8% capital preservation plus 10% yield.
"This further squeezes the profitability level of real estate funds." Real stock real bonds are the investment strategy currently adopted by real estate funds, but bond yields are relatively fixed. "This is also determined by the investor structure." Shang Zhe explained that the investment recovery cycle that these high-net-worth individuals can bear is only 2 years in total, but the life cycle of real estate funds that "truly intervene in one or more stages of the development process" is generally Both adopt the "5 + 2" mode.
Cheng Xiaoyuan, senior managing director of CITIC Capital and head of the real estate investment department, further pointed out that the longest life span of real estate funds pointing to retail properties is close to 10 years. The long-term nature of the investment has led investors to seek to bind the GP team. It is the industry practice for the GP team to invest 10% to 20% of the total amount of funds in the fund. Special domestic circumstances have resulted in this figure being only about 1%, "smaller funds may not exist at all."
This mismatch forced fund managers to adopt the bond investment model, but it also caught the GPs on the wire rope. A project loses all bets. Recently, Tianjin Xingyao Wuzhou was unable to return the trust fund due to unfavorable sales. "The loss of this trust plan is an absolute thing." Industry insiders say that this not only means that the reputation of the trust company is damaged, but also may directly affect investors' enthusiasm for real estate funds.