More Chinese insurers poised to enter London real estate market

Chinese insurer Ping An’s acquisition of the landmark City headquarters of Lloyd’s of London this week will pave the way for other Chinese insurers to enter the market, according to real estate analysts.

China’s second biggest insurer Ping An purchased the 'inside-out' building for £260 mln (€302 mln), reflecting an initial yield of 6%, marking the first real estate deal in the capital by a Chinese insurer.

Downtown Properties, the US arm of Chinese private equity group Gaw Capital Partners, advised Ping An on its acquisition of the futuristic office building that was designed by Richard Rogers. It was sold by German asset manger Commerz Real, which bought the trophy building for £231 mln in 2005. Lloyd’s lease on the site expires in 2031. Savills and CBRE advised the seller.

'The Lloyd’s building is so unique, it was a great opportunity,' Humbert Pang, managing partner and head of China at Gaw Capital Partners in Shanghai, and who advised Ping An, told PropertyEU. 'It's also an insurance group, which made it a good fit,' he added.

Other similar deals could now be on the cards, according to Pang: 'Chinese insurance companies are very cash-rich but have largely focused on mainland China so far, although that is changing. We will see them investing more in stable international markets, such as London and New York. They have very deep pockets, so deals of up to £1 bn would be possible for them, without resorting to club deals,' Pang said. Typically, such investors are likely to have a target yield of around 5% to 5.5%, Pang added.

Andrew Thomas, a partner in the Central London investment team at Cushman & Wakefield, agreed: 'Ping An has started the ball rolling for other Chinese insurers and pension funds in London. Often one group of investors, such as the Koreans, will set a benchmark for others to follow. London is still one of the easiest markets in the world to buy into because it’s so liquid,' Thomas said.

Ping An is China's second largest insurer, with a market capitalisation of CNY284 bn (€36 bn). The company declined to comment for this article.

LONDON INTERNATIONAL
Gaw Capital Partners is also interested in acquiring assets in London, Pang said. ‘We see London as a truly international market that is very liquid. We don't have a set target in terms of how much we would like to deploy there. The most important criteria are the covenant of the tenant and the yield. If these are right, we will consider the deal.'

Asian investors accounted for 37% of deals - or £1.7 bn - in the City of London and Docklands in the second quarter, up from 28% in the first quarter, according to Bill Tyser, head of City investment at Cushman & Wakefield. In the last quarter alone, deals include Samsung SRA’s acquisition of 30 Crown Place, EC2 from Hannover Leasing for £142 mln and Malaysian fund KWAP’s acquisition of 88 Wood Street from fellow Malaysian fund NPI for £183 mln.

Between June 2012 and June 2013, Chinese investors acquired 16 properties in the City of London and the West End, totalling £1.58 bn, according to Cushman & Wakefield.

Chinese state funds have invested via UK-based investment managers in London. For instance, AXA Real Estate Investment Managers - which has a strong presence in London - acted for a consortium of one European and two Asian investors in the acquisition of the Ropemaker Place office building in the City for £472 mln (€540 mln) last March. While the investors were not named, market sources say one was Gingko Tree Investments, a subsidiary of Chinese sovereign wealth fund SAFE.

Given the reliance up to now on external investment managers, Tyser - who did not comment on the identity of the buyers in the Ropemaker Place deal - was surprised that Lloyd’s of London was snapped up directly by a Chinese insurer: ‘I was surprised only in that I didn’t think they were ready to come but to buy the freehold of the epicentre is a very strategic buy.’

PRODUCT SHORTAGE
While Tyser says there is a ‘real shortage’ of major properties for sale, there are a couple that could appeal to Asian investors: Amazon’s ’60 London’ headquarters near Smithfields market is currently being sold by AXA REIM. The 19,000 m2 office property reportedly has a target price of between £245 mln and £280 mln, according to those who track the market. The first round of bids is due in at the end of this month.

According to one analyst, who asked not to be identified, Amazon’s headquarters would ‘tick all the boxes’ for typical Asian investors: 'It's a brand new modern building with a great global tenant in the middle of London, so I think it would really appeal to Asian investors,' he said. Millennium Bridge House, next to London’s Millennium Bridge - which also has a hotel component - is also on the market for around £82 mln.

Gaw Capital Partners is already an established player in its home market and has also advised Asian investors keen to invest overseas through US-based Downtown Properties. Gaw Capital Partners manages four real estate Gateway funds, which together have more than $5 bn of AUM. The private equity funds focus primarily on the Greater China region, including mainland China, Hong Kong, Macau and Taiwan. They invest in ‘under-utilised assets' including development opportunities in second and third-tier cities.