The property fund unit of Jones Lang LaSalle unveiled a $3 billion Asia “opportunity” fund in August, which will be boosted by borrowing to $12 billion of spending power. The fund hopes to pick up buildings on the cheap, as landlords who borrowed heavily are squeezed by a clampdown on bank lending, said David Edwards, Asia-Pacific director for LaSalle Investment Management. “In about five years’ time, people will look back on 2008 and 2009 and think, ‘Gee, that was a buying opportunity. Why didn’t I do more?’,” Edwards told Reuters in an interview. “We are seeing opportunities in Japan, China, and ironically because of the heightened distress, we’re looking at Australia.”
Although investors are demanding higher returns from property, as the global financial crisis high tens risk, deals can be easier than before the turmoil, Edwards said. “The negotiating power of international equity is much stronger,” he said. “Maybe therefore the price of entry is much less expensive than it was 12 months ago.” Several money managers have braved the financial markets crash to raise closed-end funds for Asia property this year, touting their long-term nature. Merrill Lynch, which is being taken over by Bank of America, said last week it had raised a $2.65 billion property fund for the region. And MGPA, a firm partly owned by Macquarie Bank, also raised $3.9 billion this year.
Economic growth forecasts for Asia are being cut, but are still higher than for the West. This month, UBS said it expected 6.1% gross domestic product growth for Asia excluding Japan for 2009, compared with 0.3% growth for the United States and Europe. Edwards said more investors were looking to Asia for "core" property -- top-grade buildings with stable income -- as well as the riskier high-return investments the region had attracted. “I think there’s a shift in perception among investors,” he said. “They still want some opportunistic investing in Asia but they want balance and to get some core as well, as they would in Europe or the US.”
LaSalle and Prudential Property Investment Management (PruPIM) launched an open-ended “core” Asia property fund at the end of 2006, which has grown to $2.5 billion and advertises returns of 8-10%. The fund can also make “core-plus” investments, taking on more country risk or buying buildings that may not yet be full, in the hope of returns of over 10%. Meanwhile, LaSalle’s opportunity fund is keen to buy warehouse and logistics buildings, especially in Japan. “The logistics market has got many years of growth,” Edwards said. “Some markets are seeing short-term oversupply, and Osaka is one. But the Tokyo bay is still in good shape,” he added.
In China, assets are likely to spring up as developers have been squeezed by a clampdown on bank lending and other government austerity measures aimed at stamping out property speculation.
Australian companies laden with hefty debt are also unloading properties, with nearly A$15 billion worth of assets now up for grabs. But property fundamentals are fairly healthy because the commodities boom has driven up demand for office space, although vacancy rates are starting to creep up. The aggregate vacancy rate across Australia’s main business districts rose to 4.9% in the third quarter of this year from 4.2% in the previous three months, according to a LaSalle report issued last week. “Interest rates have been brought down in Australia, and the pressure on cap rates to rise has diminished,” Edwards said. (Reuters)