Forum Partners Seeks to Fund Chinese Developers Amid Rout

Forum Partners, a global real estate investment firm managing $6 billion of assets, is looking to invest in more developers in China as it bets on a recovery in the market within two years.

“I’d be surprised if we were sitting here in two years having the same conversation around why China is underloved by international investors,” Chief Executive Officer Russell Platt said in an interview yesterday in Hong Kong. There are more opportunities now as there’s less financing available to developers, he said.

Forum is shifting the focus of its Asia fund away from Japan to China, increasing the weighting of the latter to more than 60 percent this year, at a time when Chinese developers face a slowing housing market and a pullback in credit. China’s home-price growth slowed for a third month in March as the central government allowed cities to impose their own property curbs to target local market conditions.

Builders will probably face more challenges this year due to an oversupply of housing in the smaller third-tier cities, a Bloomberg News survey shows.

“In the last six months, we’ve found local developers far more interested to talk to someone like us,” Platt said. “Our capital may not be as cheap as the local banks or the high-yield market during the best times, but we’re offering money for a three to seven-year time period.”

Finding Partners

Forum, which is based in London and manages capital from Western pension funds and insurance companies, is closing an investment soon in a residential developer in a major coastal city, he said, declining to specify which one and identify the developer. It also invested in a developer of warehouses in the eastern Chinese cities of Shanghai, Suzhou and Wuxi earlier this year, and plans to sign at least one or two more deals, Platt said.

“We want to find some of those good, mid-sized developers and owners who want to partner with a firm like ours,” Platt said. The firm invests mainly by offering capital to private businesses in structured deals such as preferred equity or participating debt.

Home prices last month rose 10.04 percent from a year earlier, according to SouFun Holdings Ltd., China’s biggest real estate website. In the Bloomberg News survey, 38 percent of respondents said prices will rise 5 percent to 10 percent this year, while 35 percent said they expected little change.

Default last month by Zhejiang Xingrun Real Estate Co., a regional developer near Shanghai, spurred concerns that more local builders may face insolvency. China has almost 90,000 small developers nationwide, according to data from the National Bureau of Statistics.

Forum’s Platt sees a narrow window for making investments before China starts to relax its monetary policies.

“There’s no incentive to undermine commercial stability nor is the market we think at a Lehman-style tipping point,” he said. “Once policy makers begin to loosen restrictions on lending into property, once they start to pump more money in, developers won’t need us anymore.”

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