According to new investor market data by CBRE, 2015 recorded strong activity by institutional real estate funds' disposal of significant property holdings throughout the entire Asia-Pacific region, with the majority of these funds exiting in Japan, Australia and China.
Ada Choi, Senior Director, Research, CBRE Asia Pacific tells the World Property Journal, "The market was only able to absorb a certain amount of fund dispositions and as a result, we've only seen a relatively small percentage of funds that have been able to terminate as planned. In line with our recommendations, fund managers have been strategically planning their disposition process and nearly half of the funds which were scheduled to expire in 2015-2016 are actually extending their fund life."
Choi continued, "As predicted, we've seen fund managers disposing of the more 'saleable' assets in their portfolio first, particularly those situated in high liquidity markets, such as in Japan and Australia. However, assets in less liquid markets where the economic climate is more challenging and which are less profitable tend to be viewed as less attractive to buyers, and are proving more challenging to dispose of. Our research found that at least one third of the outstanding assets to be disposed in the region remain in China and the majority of these assets--mostly in retail and hospitality--are situated in lower-tier cities. Given the subdued Chinese market fundamentals, these assets continue to face difficulty in finding buyers or in being disposed of at desirable terms. Funds that have only disposed part of their portfolios likewise may need to look at alternative approaches such as extending fund life or be more flexible on pricing."
Key APAC Fund Report Highlights:
Asia Pacific-focused private equity real estate funds disposed 310 assets at a total of $25.5 billion in 2015--37% higher than the five-year average of $18.7 billion.
Fund managers were most active in Japan, with the country accounting for 51% of the total assets sold via funds. Australia was the second most active market with 24% of fund dispositions followed by China with 9%.
The office and retail sectors accounted for the bulk of sold assets with over 80% of the disposals.
Of the 50 funds CBRE estimated to expire in 2015 and 2016, 49% extended their fund life and 24% are still reviewing their exit strategies. Only 22% of the funds terminated as planned.
Among the remaining assets for sale, there are 430 properties which remain to be disposed from real estate funds. Around 33% of these assets are located in China, followed by 19% in Japan, 15% in Singapore and 14% in Australia.
Nick Crockett, Executive Director, Capital Advisors, CBRE Asia Pacific also commented: "Given the current economic climate, there's a need for improved strategic planning and fund managers will need to look to dispose of their assets when market liquidity becomes adequate. In certain markets such as China, Japan and Singapore, currency volatility is a key issue when disposing assets. Investors should be more flexible towards asset pricing and evaluating the suitability of portfolio disposals against disposing of assets individually."
"In order to streamline their exit, we recommend fund managers to explore different options such as recapitalization with new capital or refinancing to release equity, or considering restructuring solutions to extend fund life, converting to open-ended long-term hold funds. We are already experiencing a significant increase of interest in secondary Limited Partners (LPs) as investors find ways to exit funds prior to fund termination or pre-agreed liquidity windows. If the sale of assets is proving challenging, a more proactive approach by fund managers to allow fund liquidity is important in the current environment", concluded Crockett.