Baring branches into real estate

Mark Fogle, managing director and head of real estate at BPE Asia, cites the example of One Raffles Quay, which is located not far from his office in Singapore. The base price is $950 per square foot because the developer bought the land for $330 per square foot. Just two blocks away tenants are paying $2,500 as a result of land acquisitions costs of up to $1,400 per square foot. "That is why it is so important where you are in the real estate cycle," he says.

Four years after Fogle helped set up BPE Asia and build the team, the firm has closed its debut fund at $365 million, with contributions from a string of global institutional investors. The fund will pursue equity and structured debt deals from development to later stage, committing $30-75 million per transaction with no more than 60% debt. The target money multiple and IRR are 2x and 20%.

Two investments have been completed so far, the first a $30 million mezzanine debt financing package for of a group that acquired distressed assets from foreign funds and lenders in Korea. 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 flexibility of the firm's pan-regional focus as a virtue. 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 adds. "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 essentially 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 asks. "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."

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• Topics
• Fundraising
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• Real estate
• Baring Private Equity Asia
• Fundraising
• Real estate