The world's biggest property fund manager ING Real Estate plans a second China fund next year, worth about $700 mln. (approx. 443 mln.), in response to growing enthusiasm for Asian property at a time when Western markets are suffering.
With a global credit crunch depressing activity in European and U.S. commercial property markets, ING Real Estate is pushing further into Asia. But the unit of Dutch financial services firm ING Groep NV is also looking to snap up and privatise battered real estate investment trusts (REITs) in mature markets.
"On the one hand you see part of the world slowing down, triggered by the credit crunch," ING Real Estate Chairman and Chief Executive George Jautze told Reuters in an interview. "And then you see another part of the world -- China, Japan, and even Australia -- where there are lots of opportunities."
ING Real Estate, which has a global portfolio worth more than 100 bln., set up two pan-Asian funds this year worth a combined $1.6 billion in equity. A new fund for Japan is in the works for next year, and after spending most of the $350 million raised at the end of 2006 for residential development in China, the firm plans a follow-up fund about twice that size.
The fund will be marketed in the first half of next year, according to ING Real Estate's Asia head, Robert Lie, and could invest in some commercial property as well as housing. But tougher competition among developers, which has led to higher land prices, could mean that investors will have to lower their expectations slightly from the 20 percent internal rates of return notched up by ING Real Estate's first China fund.
Jautze said he expected global property yields to edge up in the next year, as investors find borrowing harder to obtain and more expensive. Highly leveraged investors have faded away, and without the prospect of huge private equity deals, the U.S. commercial property market has come to a standstill.
Even in Japan's arena of rock-bottom interest rates, the number of bids for any building has halved to four or five as leverage for deals has fallen to around 60 percent from 80-90 percent since the U.S. subprime crisis unfolded early this year. "Overall, fundamentals in real estate markets are okay, but financing of real estate deals is under pressure worldwide," Jautze said. "But we still see a large inflow of money into real estate, and it's making a step into Asia."
ING Real Estate was looking to buy and privatise REITs it believes are undervalued, Jautze said. The British commercial market in general was particularly undervalued. "Overreaction is what we see in the UK at the moment, it's suddenly the most volatile market in the world," he said.
ING has a track record of taking REITs private, having snapped up Rodamco Asia in 2004, and buying U.S. firm Gables Residential Trust and Canada's Summit Real Estate Investment in multi-billion dollar deals in 2006.
"Since then we haven't acquired any large portfolio because we thought the pricing was so high," Jautze said. "But with weakening pricing, it could be interesting next year to do an acquisition. We are on the look out."