APAC investors partner-up to diversify risk

Joint ventures are seen as a way to diversify risk in an increasingly uncertain market.

October 11, 2019

Real estate investors in Asia Pacific are looking to joint ventures in a bid to diversify risk in an increasingly uncertain market.

Asia Pacific investors racked up US$13 billion of joint venture transactions in the first half of this year, below the US$21 billion recorded in the first half of 2018, which was swelled by the record-breaking US$5.1 billion sale of The Center in Hong Kong.

The increase in JV deals comes as global investors seek to increase their exposure while spreading risk, says Tim Graham, Senior Director, International Capital, Asia Pacific at JLL.

“We are seeing an increased appetite for JV deals as investors are looking for more creative strategies to access investment opportunities in a crowded market. JVs also reduce concentration risk for investors.”

“Asian investment managers are looking to diversify their capital and realise gains from substantial assets, while retaining a stake and management fee income. These assets are hard to replicate, so owners often do not wish to sell out,” says Graham.

“From the investor point of view the substantial lot sizes in core Asian cities mean they often prefer buying a minority stake in order to diversify risk in their portfolio.”

Around US$8 billion of those deals took place in China, where international investors are playing a larger role, due to the relaxation of rules regarding foreign capital and domestic companies requiring more funding. Most overseas investors prefer to form a JV with an asset manager, either Chinese or international.

In July this year, German insurance company Allianz entered into a JV with Gaw Capital Partners to acquire the Duo Tower and Duo Galleria in Singapore a joint venture between Malaysia’s strategic investment fund, Khazanah Nasional Berhad, and Temasek Holdings – represented by JLL - for S$1.6 billion (US$1.2 billion). Gaw is understood to be acting for a sovereign wealth fund in the transaction.

At the end of last year, Allianz bought a 20 percent stake in Ocean Financial Centre in Singapore from Keppel REIT for S$537.3 million (US$392.1 million).

In August, UK developer and investment manager Chelsfield teamed up with Malaysian developer Amcorp Properties, Hong Kong investment manager Pamfleet and Hong Kong billionaire Adrian Fu in order to acquire interests in four Shanghai office towers for RMB1.5 billion.

The office towers at LifeHub@Danang, sold by units of Sino Ocean Group, will be owned by a 50:50 JV between Pamfleet’s latest fund and a consortium formed by the other three investors. 

Amcorp has previously co-invested with Chelsfield in the Shanghai office sector.

“We expect to see continued interest in joint ventures from both investors and investment managers, particularly in developed markets where competition for assets is strong and lot sizes are higher,” says Graham.