Baring Asia closes debut real estate fund

Baring Asia, which recently raised $3.98 billion for its sixth pan-regional private equity fund, entered the real estate space in 2011 with the addition of Mark Fogle, who previously covered the asset class in Asia for Deutsche Bank's alternatives arm and for AIG Global Real Estate. The three senior managing directors all previously worked together at AIG.

The fund launched with a target of $300-500 million and a remit to make equity and structured debt investments across the region, committing $30-75 million per transaction with a target money multiple and IRR of 2x and 20%, respectively. Fogle told AVCJ that $365 million is sufficient to execute BPE Asia Real Estate's strategy, noting that most first-time funds don't get past $300 million.

The first deal saw the firm provide about $30 million in mezzanine debt funding to a group that acquired distressed assets from foreign funds or lenders in Korea. Three of the properties have already been foreclosed. The investment is typical of a BPE Asia due to its opportunism - there is a dislocation between pricing and underlying asset values - and potential for value-add through a refurbishment program.

In this way, Fogle sees the firm's pan-regional focus as a virtue: it flits between markets based on where they are in the real estate cycle and what this means for the entry price per square foot. Korea is attractive right now, in part because there is little competition from foreign funds that have struggled in the country. The appeal of the Philippines is based on its low investor penetration and rapid economic growth.

"We may or may not participate in Hong Kong given its high capital values and not much distress," Fogle added. "We may not participate in Japan because we think there is too much overweight foreign capital in that market. We will end up with some exposure in Singapore."

China, meanwhile, is expected to see further deterioration, following huge investment from foreign funds between 2011 and 2013 and ramp up in pricing driven by rising land values. Fogle contrasts the speculative approach taken by many investors in the country - all the yield went towards paying down debt so they relied on flipping properties for a profit on exit - with BPE Asia's focus on long-term fundamentals and end-user demand.

"Take one of these Class B office buildings in Shanghai - why isn't someone like China Life Insurance or Ping An Insurance Group buying those assets because their cost of capital is so much lower than a foreign fund that needs a 20% IRR?" he asked. "They are taking their money outside of China. It is a concern for us when the bulk of transactions completed in a country are completed by foreign capital."

The successful close of BPE Asia Real Estate Fund means that Baring Asia is now advising funds with more than $9 billion in committed capital. Jean Eric Salata, the firm's founding partner and CEO, noted that an increasing number of investors are saying they want to concentrate relationships with fewer managers who can service them across multiple alternative investment asset classes.

Eaton Partners served as placement agent for BPE Asia Real Estate Fund.

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• Topics
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• Baring Private Equity Asia
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