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Private Equity Investors Broaden Geographic, Property Focus in Asia

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Based on CBRE's newly released Four Quadrants Asia Pacific H1 2015 report, highlighting the “four quadrants” of institutional real estate capital –private equity, public equity, private debt and public debt–reported an uptick in real estate capital market transactions in the second quarter of 2015 across Asia.

Private equity fund raising registered an uptick in Q2 2015 after a slow start in the previous quarter, bringing the total capital raised to US$5.4 billion in H1 2015. Well-established fund managers with strong track records have attracted the lion's share of capital in the competitive fund-raising environment, rallying strong investor support for their subsequent fund vehicles on the back of previous successes.

Several pan-Asian funds reached their final closes in Q2. Core-plus and value-added funds accounted for half of total capital-raising in H1 2015, whereas experienced overseas investors increased allocation into country- and sector-specific funds. While July saw additional closes and a number of funds are raising capital at present, moderate growth is expected for the remainder of 2015 following two active years of fund raising.

Nick Crockett, Executive Director, CBRE Capital Advisors Asia Pacific, commented, “although there is still a core and gateway city strategy being implemented by certain institutions, others that have gained increasing experience over the last number of years are starting to broaden their potential investment criteria. This is leading to increasing investment across the capital stack via equity or debt instruments.”

Japanese and Korean groups have been particularly active in overseas investments, with Australia, Southeast Asia and Europe being major destinations for the Japanese, and the US and continental Europe for Korean investors. For the most part, the office sector is still of the most interest as other asset classes are less familiar, but activity is picking up across other areas such as logistics and retail.

Mr. Crockett added, “Given continued global yield compression, a number of institutions are seeking opportunities that are more core-plus and/or value-added in terms of geographic specificity and potential return upside. For example, Korean investors are continuing to expand their scope of overseas real estate investment, as demonstrated by the recent structuring of a preferred equity co-investment by Korean investors with a French investment manager for an office asset in Paris, as well as the recent equity capital-raising for a Munich-based investment manager to acquire a single-tenant headquarter office asset in Denver in the US. Favorable macro and micro fundamentals and the current unique liquidity dynamics of the market are supporting the upbeat activity in overseas capital-raising.”

In the first half of 2015, real estate bond issuance was recorded at US$21.2 billion, 63% of the full-year total for 2014. Chinese developers led as the biggest source of public bond issuance in H1 2015, while Singapore's half-year issuance of US$2.1 billion has exceeded the year-end total of US$1.8 billion in 2014. There was steady REIT IPO activity in H1 2015, despite volatility in the public  in the second quarter.

Ada Choi, Senior Director, CBRE Research Asia Pacific, commented, “reflecting on developers' continued appetite for capital in the current strict banking lending environment, we have seen an upsurge in demand for bond financing, particularly by listed major players in China and Singapore, as well as a gradual but steady move by Chinese regulators to permit developers to access the domestic bond market.”

Ms. Choi added, “In a bid to diversify and increase channels for capital-raising, domestic governments have implemented related regulatory measures, such as changes to India's taxation structure for REITs and policies by the Singapore government to enhance transparency and corporate governance while increasing the percentage allocation for development projects. Such regulatory easing and the removal of obstacles to growth will pave the way for the expansion of the REIT market in Asia Pacific, which will in turn, support overall commercial real estate investment.”

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