China, which has largely weathered the economic storms buffeting much of the developed world in the past few years, has continually proven itself to be an important target market for private real estate fund managers. Fundraising for China-focused real estate funds has risen steadily since 2011. In 2012, 13 vehicles held a final close and secured $4bn from investors, while in the year before, nine funds raised $2.7bn. This year, five private real estate funds with a preference for Chinese assets have held a final close, garnering $2.6bn in total commitments.
At present, there are 26 private real estate funds investing in China targeting aggregate capital commitments of $14bn. Half of these funds in market have already held interim closes and secured at least $5bn worth of capital commitments from investors.
The largest of these 26 funds is Blackstone Real Estate Partners Asia. As Blackstone’s first fund targeting the Asian and Australasian markets, the vehicle is seeking $4bn in commitments and recently held a first close on $1.5bn. One other significant China-focused private real estate fund that is seeking capital is HREI China Total Return Fund. The debut vehicle, launched in May 2013 by first-time manager Harvest Real Estate Investments, is aiming to raise $500mn from investors. It takes an opportunistic strategy and is interested in a diverse range of assets such as office, residential and retail properties. Despite being a relatively young company, the firm is headed by Rong Ren, a veteran investor in the Chinese market who had an impressive stint with China Resources Group.
Another private vehicle on the road investing in Chinese assets is Gaw Capital’s Gateway Real Estate Fund IV. Launched in June 2012, the fund has almost reached the end of its fundraising trail with $780mn in commitments pledged by international investors such as sovereign wealth funds and pension plans.
Overall, fundraising conditions for private real estate funds with a preference for the Chinese market look promising; the aggregate amount raised by funds that have held a final close so far in 2013 is close to surpassing the total amount raised by funds that closed during the whole of 2011. With a number of funds looking to raise significant amounts of capital, 2013 could be a successful year for Chinese real estate fundraising. However, fund managers with an established track record or experienced management team such as Gaw Capital and Harvest Real Estate Investments are likely to find it easier to secure commitments from investors, with many LPs still taking a cautious approach to the region.