Cambridge Associates touts fleeting China real estate opportunity

In an environment where asset owners increasingly say they’re on the lookout for fast-evolving, time-limited opportunities to secure investment gains, Mr. Adji said Chinese real estate firms fit the bill now.

With tens of billions of dollars of debt coming due and large banks in the region constrained in their capacity to extend fresh loans, direct lending managers have become “the only game in town” for stressed Chinese real estate developers, he said.

And for the coming year or more, the pickings should be lush. With the ranks of real estate company founders looking to “pull a rabbit out of their hats” as those loan repayments come due, and the number of direct lending managers with the capabilities needed to compete effectively in the space still limited, “we’re getting into a market whereby you can name your price,” Mr. Adji said.

The current moment can be seen as the “first innings” of a game that could well be played out in as little as 12 to 18 months, with the bulk of the mountain of debt these companies hold coming due over the next 12 months, Mr. . Adji said.

Against that backdrop, developers on the mainland who previously would have only offered up their office assets in Beijing or Shanghai as collateral are asking, “What do I need to give you (in exchange for a loan) … and what we’re telling them. is we want your assets in America, in Canada, in Hong Kong and Singapore. Do you have any? That’s what’s happening on the ground” now, he said.

And the clock, Mr. Adji contends, is running. “We think that the opportunity is likely to significantly diminish in about 18 to 24 months … or at least the lowest of the (low) hanging fruits, so we’re telling our clients that the time to act is now,” he said.

At present, demand still significantly outstrips supply and first movers should be rewarded, Mr. Adji said. “When you see the wall of money coming” in 12 or 18 months, “We’ll pull back. It’s all about being tactical … this is not a multicycle opportunity,” he said.

Cambridge Associates, meanwhile, has identified between five and 10 direct lending money managers with the “very different skill set” needed to identify and execute multijurisdictional deals, said Mr. Adji. He declined to name them, calling that lineup his firm’s “secret sauce.”

One quality those managers share is an ability to be nimble and make quick decisions.”When you’re talking about lending to these borrowers at … up to 15% interest, they typically need the money yesterday (and) you need to be able to disburse the capital in two weeks,” Mr. Adji noted.

That leaves big managers, with multiple committees that need to sign off on a deal as well as headquarters in New York or London that need to weigh in, at a disadvantage, he said, noting that a number of managers on Cambridge Associates’ list broke out of bigger fund companies in order to put a more streamlined structure in place.

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