Meet The Asian Investor Snapping Up UK Property Firms

Normally when someone says they are late to the party, they don’t mean it as a good thing. But for Singaporean fund manager ARA, arriving to the UK real estate scene later than some of its Asian peers just might be.

“There are plenty of groups that came [from Asia] in the last five years and made their bets in the UK and Europe, and we have come in a bit later with fresh capacity,” ARA Head of Europe Mark Ebbinghaus said. “The way things are playing out I don’t think that’s a bad thing.”

It is also doing things differently than some of the other major Asian investors in the UK. Rather than buying individual trophy assets, or even portfolios, ARA is buying businesses. In late 2019, it completed a deal to buy a majority stake in veteran investment firm Dunedin. And in March, it completed a deal to buy a majority of debt fund manager Venn Partners. 

Ebbinghaus told Bisnow about the scale of ARA’s ambitions in the UK and Europe, how it is on the lookout for more corporate acquisitions and where the opportunities will lie for an investor coming from Asia for the first time.

ARA is one of the largest real estate fund managers in Asia, with £49B in assets under management, split between stakes in public REITs, holdings in private funds and investment in infrastructure assets and funds. 

The company was listed until 2017, when it was taken private by a consortium including founder John Lim, Li-Ka Shing’s CK Asset Holdings and private equity firm Warburg Pincus, in a deal that valued the company at £1B.

The vast majority of its assets are spread across Asia Pacific, with about 7% in Europe through joint ventures, but in 2019 it turned its attentions to the UK and Continent in earnest.

“We didn’t want to scale up by adding people and building a team piecemeal,” Ebbinghaus, an Australian former Standard Chartered banker, said of the decision to buy a majority in Dunedin and Venn. 

Dunedin is an office and light-industrial specialist set up in 1996 by Roun Barry. ARA Dunedin, as it is now called, will be used to make equity investments in the UK. 

Dunedin’s background is in value-add and opportunistic investments. Its biggest deal in the past few years was the sale of a portfolio of light industrial assets to Blackstone for £560M in 2017. 

Ebbinghaus said there was a very deliberate strategy in buying a value-add asset manager.

“We wanted a value-add platform with deep asset management experience, adding real value and used to getting their hands dirty, not just shuffling papers,” he said.

He added that while it is more than feasible for value-add managers to invest in less risky core assets, core managers usually can’t invest in deals that require significant asset management.

Having a local team with deep industry knowledge will be key to finding off-market deals in the coming months, when such deals are likely to be the only game in town. And while Dunedin specialises in light industrial and office, as the platform expands, ARA could buy other sector specialist firms and bolt them on if it sees specific opportunities, Ebbinghaus said. 

The aim is for ARA Dunedin to invest the capital of the Asian institutions with whom ARA has a relationship, that might want to invest in the UK, as well as local institutions looking to tap into Dunedin’s expertise. Ebbinghaus said the hope is to bring UK and European investors out to Asia over time as well. 

Now that ARA has a platform in place for making UK equity investments, it is not going to rush into asset acquisitions, given the uncertainty that the coronavirus pandemic has created in the market. Indeed, while Ebbinghaus has not commented on the deal, a major acquisition that was in train, the purchase of a 50% stake in the Nova office scheme in Victoria from CPPIB, has been paused. But the size of the deal at more than £400M shows the scale of its ambitions. 

Other opportunities will arise.

“It is not a bad thing to have dry powder in the current market,” Ebbinghaus said. “People who invested earlier and with leverage are seeing declining income [and]  will be troubled, and we will see to some extent a changing of the guard. Being nimble and having firepower will be beneficial in the current market.”

He added that government support for businesses and central bank quantitive easing, while unable to keep the economy going entirely, will be beneficial for real estate in the medium term.

Ebbinghaus said while there is no set target for ARA’s investment into the UK and Europe, it is only worthwhile expanding into the region if over time it becomes 10% to 20% of the firm’s overall assets under management, which would equate to £5B to £10B of investment over the coming years. 

A significant part of that expansion will come in the form of debt. ARA completed a deal in March to buy Venn Partners, a specialist debt fund manager with £5B of assets under management, mainly in the UK, but also in Europe. At this point in the market, debt is not a bad place to be. 

“Together with our capital partners, we have a lot of experience in debt, and it is a lower-risk entry point to a new market, especially at this point in the cycle and in these volatile times,” Ebbinghaus said. “In the past five or 10 years, banks have given ground and you’ve seen specialists like Venn come in to fill the gap.”

Venn is the manager of a £3B government scheme to provide guarantees and loans to build-to-rent developers, of which £1B has been allocated, and Ebbinghaus said the firm would look to manage other such government programmes in the residential space as they were rolled out.

The firm launched a follow-on to its £185M Venn Commercial Real Estate Fund, which will provide commercial property loans, and Ebbinhaus said it would also look to expand further into continental Europe, where it has a significant presence in the Netherlands and recently opened an office in Madrid. 

“At this point in the cycle, there is more stress in the system, and there will be lot more opportunities in the market over the next 12 months than there were a year ago.”

The music has stopped and the party is on hold for now. But when it starts up again, ARA is ready to dance.