Chinese PE Firm To Lead $1.5B London Real Estate Project

An $8 billion Chinese investment fund took a major position on UK property this week when China Minsheng Investment announced that it is backing a £1 billion ($1.5 billion) scheme to build a new downtown in eastern London.

The financial commitment makes Minsheng the largest investor in the Asian Business Port, a development planned by Beijing’s Advanced Business Park to build a mixed-use project that includes a business centre for Asian companies in a run-down section of eastern London.

By making this investment, Minsheng appears to be betting that a lightly experienced Chinese business park developer, with a boost from the high level of interest in London real estate from China’s individual and smaller corporate investors, will help it make a profit on an area of London that has been declining for more than 50 years.

The project also shows the increasing willingness by Chinese investors to use private equity funds as a vehicle for making overseas investments.

Chinese PE Firm Bets on UK Redevelopment Project
The Asian Business Port project is attempting to redevelop 35 acres (14 hectares) of land along London’s Royal Albert Docks into a multi-use third downtown district for London between now and 2023.

The 600,000 square foot (55,000 square meter) first phase of the project, which according to the developer is proposed to provide office space for companies from China, other parts of Asia, and the rest of the world is scheduled to be completed in 2017. This first phase will also include housing for sale.

The Royal Albert Docks in London are already seeing signs of redevelopment. (Photo courtesy of Wikimedia Commons).

By the time all four phases of the project are complete, the Asian Business Port is expected to include more than 700,000 square feet (65,000 square meters) of office space, 4.7 million square feet (437,000 square meters) of built area, a shopping street, eight public squares and a waterfront boulevard.

According to an account in The Wall Street Journal, Minsheng announced at a signing ceremony in Shanghai yesterday that it would be supplying most of the funds for the Business Port, putting to work part of the RMB 50 billion ($8 billion) it raised from 59 privately-held Chinese companies when it was formed in August 2014.

Private Equity with Government Links

Although it was formed less than a year ago, China Minsheng Investment is already one of the country’s largest private equity firms, and is led by the former head of China Minsheng Bank, the biggest privately-held bank in the nation.

Although there is no direct legal relationship between the bank and the fund, Dong Wenbiao, who serves as chairman of Minsheng Investment, led Minsheng Bank for eight years before stepping down just days before the private equity firm was formally launched last year.

And while both the bank and the fund are privately-held entities, Dong’s successor at Minsheng Bank, Mao Xiaofeng, resigned earlier this month just hours after state-run media announced that he was being investigated by China’s anti-corruption authorities.

Mao is said to be accused of providing plum jobs at the bank for the wives of senior government officials. According to Ma Guoxian, a political economist at the Shanghai University of Finance and Economics, “Minsheng claims to be China’s first privately controlled bank, but its leadership is actually controlled by the party and corrupt officials could use it as a platform to strike power-for-money deals.”

Potential to Lead Rebuilding of East London Docklands

Whatever the origins of Minsheng Investment’s management or money, London officials are enthusiastic about the potential to build a third downtown district, after the traditional City of London, and the more recent Canary Wharf area.

Royal Albert Dock, where Asian Business Port is to be located was Britain’s largest purpose-built dock when it was completed in 1880, but it fell into decline in the 1950s, and finally closed in the 1980s.

According to Advanced Business Park, which is codeveloping the site with British builder Stanhope, the project will bring £6 billion ($9.24 billion) in investment to the area and create 20,000 new jobs.

The plan for the business park, which was first announced in 2013, was approved by the local government in July 2014.

Building to Sell?

The new jobs and the investment capital for the city are probably only part of a larger real estate story for the developers, however.

Not only have Chinese wealthy individuals shown a growing interest in jumping into London’s sky-high real estate market, but Chinese corporates have shown an increasing willingness to purchase assets in the city.

Just last month, Ping An Insurance spent ₤327 million ($490 million) to buy an office building in London, the second such purchase for the state-run insurer and the latest in a string of buys by Chinese companies that led to $3.32 billion in London real estate purchases by mainland investors last year.

On Advanced Business Park’s website, the page introducing Asian Business Port, points interested parties to London-based brokerage house Savills, “To register interest in purchasing a building or taking space in the new development…” Which seems to indicate that the developers are interested in selling off complete or partial buildings in the project to smaller investors.

Developer with Limited Success Outside of Beijing

Sales of office space are already a large part of the business model for Advanced Business Park at its best known project in China, the Zhongguancun high tech park in Beijing.

The suburban business park in China’s capital has been highly successful in becoming the home to China’s Internet and other high tech firms, thanks in part to the rapid rise in cost of Beijing office space, as well as government policies encouraging Internet firms to stay close to the regulatory authorities in the capital.

Outside of Beijing, Advanced Business Park has had limited success developing similar office developments in the Chinese cities of Shenyang, Hangzhou and Qingdao. The London project is the first overseas foray for the developer.

Chinese PE Just Getting Started

However, the Asian Business Port project turns out, China Minsheng Investment’s decision to back the London scheme is an important milestone in the involvement of Chinese private equity in overseas investment.

Faced with overinvestment in its home market and a desire to spread the country’s presence globally, China’s government has been pushing a “going out” strategy for the past several years.

As part of this increased focus on overseas deals, the authorities in Beijing have gradually been removing regulatory obstacles to overseas deals, including using its free trade zones to ease the movement of cash out of the country.

With many Chinese high net worth individuals and wealthy corporates looking for opportunities to invest overseas, but lacking the sophisticated investment teams necessary to research such deals, we can expect Chinese fund managers such as Minsheng to play an increasing role in China’s overseas investment wave.