Seeking value in Asia

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Asian Property Review talks to Samuel Chu, Founding Partner of Phoenix Property Investors, a private equity real estate business with assets under management in Asia worth over USD6.7 bil.

Text by Jan Yong | Photos provided by Phoenix Property

1. What is your company’s investment strategy?
SC: Phoenix Property Investors was founded in 2002 as a fundamental value-oriented private equity real estate business for two reasons – to deliver exceptional results for our investors and provide the finest quality properties for our customers.

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Since then, the company has raised over US$2.5 billion to invest across first-tier Pan-Asian cities. Through our network of local and affiliated offices in Hong Kong, Shanghai, Beijing, Taipei, Tokyo, Seoul and Singapore, our real estate assets managed and/or under management have surpassed US$6.7 billion.

Through fundamental analysis and a thorough understanding of direct real estate markets, Phoenix targets strategic investment opportunities such as distressed assets, mezzanine lending, non-performing loans (NPLs), development and redevelopment projects as well as highly liquid, income-producing properties. Where appropriate, we also execute a wide spectrum of value-added strategies including renovation works, structural and interior upgrades, asset repositioning, tenant reconfiguration and rental stabilization.

2. So far, what is your company’s average yield in all your investments?
SC: The Internal Rate of Return (IRR) of our sold projects as of December 31, 2015 was 34%.

3. What qualifies a city as a first-tier market? Will your company ever consider a 2nd tier market e.g. Kuala Lumpur, Phnom Penh, HCMC or even emerging markets like Sri Lanka and Myanmar?
SC: A pan-Asia strategy helps diversify risks, and we do look beyond cities like Hong Kong. However, we will adjust our approach as there isn’t a one-sizefits- all strategy, given that individual markets have different cycles, supply, and demand. Key aspects that we look for in a market are good supply and demand fundamentals, well-defined laws and regulations that offer a level playing field, and deep liquidity for when we want to exit. Some of these other markets are challenging in one aspect or another so a project would have to be exceptionally intriguing for us to consider it. With that said, we are always evaluating additional markets and have a mandate to invest where we see great opportunities in Asia, so we have the option to invest in these places in the future.

4. In this era of slower economic growth, is there a change in your investment strategy?
SC: Our investment strategy has always been focused on discovering value, often through buying below market price, and adding value after acquisition through complex strategies that utilize our vertically-integrated team. We have continued this commitment and discipline in the current market and have also sought out more downside protection and more flexible exit strategies. We have always looked for ways to de-risk our projects through the life of the investment and have been willing to exit projects early if we are able to capture the majority of our projected profits. In the volatile environment in which we find ourselves, it’s advisable to remain open to all options.

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5. Who are your target buyers for The Master Collection?
SC: We are targeting both local buyers and investors in the Asia-Pacific region. This includes buyers who appreciate art and natural beauty, and understand the investment value of this truly collective art piece.

The success of Beaumont, our previous project located in the same area, proves that demand is strong for welldesigned, high quality homes. The Beaumont project attracted experienced buyers from Hong Kong, including repeat clients of Phoenix, CEO of a listed company in Hong Kong and CEO of a property agency.

6. Do you foresee more Chinese Mainlanders going on a property buying spree around the world? What are they looking for in an overseas property?
SC: We still see consistent demand for Hong Kong residential properties coming from both Hong Kong residents and foreigners. Examples include The Morgan designed by Robert Stern in Mid-Levels, 3 Julia Avenue in Ho Man Tin. These buyers look for well-designed properties with good investment value. The location, school networks nearby and the environment are also very important factors for them.

For several of our projects such as The Master Collection in Taipei, we have collaborated with prominent architects, who brought their collective experience and innovative designs to deliver our vision and commitment to excellence. This one-of-a-kind opportunity to own freehold property in an exclusive location surrounded by natural landscape is very attractive for buyers that appreciate an addition of a gem like this to their portfolio.

We will be hosting a series of exclusive exhibitions for The Master Collection in the Asia-Pacific region, beginning with Hong Kong, followed by Beijing and Shanghai.

7. Apart from the design by illustrious architects, what is the appeal of buying the Master Collection?
SC: The uniquely designed houses are designed by five of the world’s most celebrated architects from Architectural Digest’s AD100 list – Richard Meier, Jim Olson, Annabelle Selldorf, Steven Harris, Tsao & McKown. It is also the first residential project for Annabelle Selldorf and Steven Harris in Pan-Asia.

The development is located in the prestigious Great Taipei New Town district, a residential area renowned for its lush hills and expansive views of Xueshan, and around 25 minutes from downtown Taipei. It is also close to the Wulai Hot Springs, the Bitan Scenic Area, and is home to one of Taipei’s most respected international schools – Kang Chiao Bilingual School. The Master Collection offers uncommon privacy and the security of a gated community within an elite neighbourhood.

The finest materials and finishes will be applied to all houses, as well as sophisticated interior design packages proposed by each architect. Also, a dedicated concierge services will be provided by the professionally trained Colliers team offerring services from housekeeping, landscape maintenance to personal travel itinerary planning and restaurant reservations.

8. What is the appeal of buying in Taiwan?
SC: A popular travel destination, Taipei is gaining traction for its distinctive blend of heritage in East Asia. We have seen a lot of interest in Taiwan from buyers in Asia. They value Taiwan’s strong culture and leisurely pace of life as well as the freehold property laws. When you consider Taipei’s close distance to Hong Kong, we are confident this development is destined to be a first choice for a holiday or retirement home.

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Taipei is an emerging market for foreign direct investment, and there has been an increased demand for high-end, luxury residential projects. We also believe that Taipei’s unique culture and heritage makes it a viable candidate in the “up-and-coming” market for property investment. In Asia, it boasts the lowest property tax for foreigners of around 0.1% of the property value.

9. Where and what type of property will be your next acquisition/development?
SC: We are always working on a number of deals across all our markets and we are very selective. We see a number of opportunities across our markets, especially in the office sector and the mezzanine lending space. We can’t discuss any live deals until they are completed, but Phoenix has recently acquired properties in Korea and Japan.

We are planning to develop the Seoul site in conjunction with Standard Chartered into a one million sq ft office complex purpose-built for back office or call center use. The Tokyo site was sold for 1.7 times the original purchase price within a year of acquisition and we have recently acquired a property in Osaka.

10. What is the real estate outlook in the 2H of 2016 in Asia?
SC: The world is a volatile place and that does not appear to be calming down in the coming months. This could be a good thing for real estate since it is considered a more stable asset class and for Asia since the risk premium that people expect versus the US, UK or Europe should not be as high. Our experience investing through multiple cycles is that there are always opportunities but you have to look very hard, be selective, seek out downside protections, and look for ways to mitigate risk.

We always watch elections and public sentiment closely since policy can have a large effect on real estate as an investment class. For example, politics have overridden market forces in residential markets in regional hubs such as Hong Kong and Singapore which makes investing in those markets very tricky. There are also opportunities in up–and-coming cities like Jakarta which has a supportive business environment and is reported to have a shortfall of 1 – 2 million homes.

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