Allianz, Gaw and TH Real Estate form $1bn Chinese outlet mall fund

Insurance company Allianz has partnered TH Real Estate to establish a US$1bn (€846m) fund to buy two luxury designer outlet malls in China.

As the largest cornerstone investor, Allianz has committed US$225m, representing 30% of the equity in the closed-ended ERES APAC II-China Outlets Fund.

Other investors include New York-based TIAA, the parent company of TH Real Estate, and Gateway Real Estate Fund V, a fund managed by Hong Kong-based Gaw Capital.

Rushabh Desai, Asia-Pacific CEO of Allianz Real Estate, told IPE Real Assets that the fund will have equity commitments totalling US$750m, and, with gearing, a total capacity of US$1bn.

He said it will acquire two stabilised outlet malls – Florentia Village Jingjin and Florentia Village Shanghai – from the Silk Road Holdings consortium, which includes Gaw Capital’s Gateway Real Estate Fund III.

Chris Reilly, managing director for Asia-Pacific at TH Real Estate, said: “The success of this first close demonstrates the wide appeal of our China Outlet Mall strategy, offering investors an exclusive opportunity to invest in premier designer outlet malls in China.

TH Real Estate last year formed a China Outlet Mall Fund (COMF) with Gaw Capital as joint sponsor and manager. At the time, TH Real Estate said it had aspirations to grow the fund’s portfolio to around US$2bn over the next five years.

In a statement today, Reilly said: “We have seen this niche sector continue to gain in popularity with China’s brand-conscious consumers.”

Aside from the two completed malls, Reilly said the fund has identified a pipeline of other assets. Three other Florentia outlet malls are being planned for China.

But Desai told IPE Real Assets that, for now, Allianz is committed only to the two completed malls. “We want to see the performance of the malls in the first six to 12 months,” he said.

“We look for stabilised assets. Brick-and-mortar retailing is struggling because of fast growth in online sales, but online deals with day-to-day retailing. Outlet malls serve the luxury segment of the market.

“Two groups of buyers are driving sales at these malls. These are the growing middle class, which wants to buy branded goods but wants to buy them at a discount; and the rich and famous, who would previously shop in Tokyo or Europe.

“Now, some of them are saying they don’t want to spend the money to fly overseas when they can buy these brands at the outlet malls.”

The Florentia Village malls in China house some 200 international luxury brands. They are managed by RDM Asia, part of Italy’s Fingen Group, which will continue to manage the two malls in China.

Desai told IPE Real Assets there is limited competition in this segment within China.

“We feel confident that the business model and the operator RDM will be able outperform the competition,” he said.

Desai says Allianz is looking to replicate its European outlet mall performance in China. Allianz invested in TH Real Estate’s Europe Outlet Mall Fund in 2004 and its UK Outlet Mall Fund in 2008.