"Pick Up The Leak" Urban Renewal: Warburg Pincus Invested 600 Million US Dollars To Increase The Distribution Of Mainland Assets

Capital booms and falls. Recently, Warburg Pincus has reiterated its series of investment actions in Shanghai, or to prepare for the further asset investment opportunities.

"They're picking up leaks. Big companies are "used to taking advantage of the fire" and can't turn to Warburg Pincus when they are on fire. " On July 5, Zhang Wenhua (not his real name) said after learning that Warburg Pincus had set up an asset management platform in Shanghai.

Zhang Wenhua is the person in charge of an asset management company in Zhejiang Province. He has been focusing on the urban renewal of the track in recent years, so he also pays close attention to the relevant capital trends. In fact, within the asset management circle, Warburg Pincus has been increasing its investment in the mainland for a long time“ They have been buying shopping malls, office buildings and even parking lots in the first and second tier cities

According to the investment information recently released by Warburg Pincus in Shanghai, it can be seen that the company is accelerating the distribution of domestic assets. On June 30, Warburg Pincus announced that it and Jinhe Investment Group Co., Ltd. (hereinafter referred to as "Jinhe") jointly established Jinhe asset management company (hereinafter referred to as "Jinhe asset management"). According to people familiar with the matter, this platform was established last year. Earlier, at the end of 2018, Warburg Pincus also took a strategic stake in Chuangyi, another urban renewal platform in Shanghai.

Subsequently, on July 5, Warburg Pincus announced that it planned to invest US $600 million to establish Wensheng special opportunity asset management company (hereinafter referred to as "Wensheng asset management") together with Shanghai Wensheng Asset Management Co., Ltd. Investment in this platform includes a number of sub sectors such as non-performing debt and the rescue of distressed enterprises, one of which is urban renewal.

As a private equity investment institution originated in the United States, Warburg Pincus has been dormant in China for many years. In the past two or three years, Warburg Pincus has been increasing its urban renewal. Behind this, there is no lack of capital's keen sense of national policy and the desire for the profit-making effect of market stock expansion.

Macro policy support

Yu Minjun, chairman of Jinhe group, pointed out that there is very little land available for development in the center of Shanghai, but opportunities for urban renewal abound. With the ability of acquisition, transformation and operation, Jinhe group's Jinhe business developed rapidly and realized A-share listing in the past five or six years.

Jinhe and Warburg Pincus investment is a case of urban renewal entering a new stage. Warburg Pincus did not disclose the amount of investment in Jinhe asset management, but it has a grand plan of 50 billion assets in three years. Compared with the market capacity of one trillion yuan a year for domestic urban renewal, this may not be difficult to achieve.

Warburg Pincus investment realized its investment through the establishment of an asset management platform. It is a new approach, but in fact it is an old one. It still focuses on equity investment mode. The reason for choosing Jinhe capital is very simple. According to the calculation, the property under Jinhe asset management is 20% - 30% higher than the surrounding property.

The reason for the capital rush to urban renewal is that domestic assets are still cheap“ The last three years have been an opportunity to acquire non-performing assets. " Yu Minjun laughs at herself. Jinhe is good at collecting junk goods in the city center. Taking the renovation of Beijing Hualian Commercial Building as an example, Jinhe spent more than 1100 yuan / m2 of renovation cost. After the renovation, the rental income was 6.7 yuan / m2 / day, which was 120% higher than that before the renovation (more than 3 yuan / m2 / day). In many projects of Jinhe, the operation efficiency is improved at 100%. This is also the main reason why Warburg Pincus investment has accelerated its layout in the first and second tier cities recently.

Zhang Wenhua pointed out that high turnover is still the main mode of the capital side. At present, domestic urban renewal has entered the stage where different functional investors (asset management parties) need to be connected at different stages of the project. The government is also aware that urban renewal is the focus of high-quality urban development in the future.

Cui Ji, assistant to the president of Shanghai E-House Real Estate Research Institute, believes that the macro policy of urban renewal in 2019 is put on the agenda, and it is time to test the enterprise's ability of fine management and operation, industry introduction and financial grafting.

Since this year, the national level and even the local government have taken a clear attitude in promoting a new round of urban renewal. On April 19, Jiangsu Provincial Department of housing and urban rural development signed a framework cooperation agreement with Jiangsu Branch of China Development Bank. Shi Changhong, head of industry department 3 of the head office of China Development Bank, said that China Development Bank will provide nearly 500 billion yuan of credit line to support urban renewal this year; On June 2, Shanghai announced that it was the first to set up the largest urban renewal fund in China, with a landing scale of 80 billion yuan, and targeted investment in old area reconstruction and urban renewal; On June 17, Tianjin Urban Investment Group, as the main body of the first batch of urban renewal projects, signed a 120 billion yuan project cooperation agreement with Tianjin Branch of China Development Bank; On June 18, the Chongqing municipal government issued the "Chongqing urban renewal management measures" to encourage the active use of national policy finance and market finance to support urban renewal policies to raise funds and explore new credit financial products; We will actively introduce all kinds of social capital and explore the establishment of special funds for urban renewal.

Not long ago, at the urban renewal forum hosted by surging, Li Yiping, deputy secretary of the Party group and vice chairman of the 13th Shanghai Municipal Committee of the Chinese people's Political Consultative Conference (CPPCC), pointed out that according to the overall plan of Shanghai City 2035, the focus of urban renewal has changed from demolition to retention, and the goal of urban renewal has changed from quality development to stock renewal. This means that the market of urban renewal has entered the stage of expansion.

In fact, there are fewer and fewer land to be sold publicly, and the layout of urban renewal of large housing enterprises is earlier than that of foreign capital. On July 29, 2020, China Shipping Enterprise Development Group Co., Ltd. and Shanghai Huangpu District People's government officially signed a cooperation framework agreement, in which China Shipping real estate will develop and construct five pieces of land in the historic landscape protection and urban renewal project of 67-71 block, Jianguo East Road, Huangpu District. This project is planned to invest nearly 60 billion yuan, which will become the largest investment project in the history of China shipping. This is also the first expansion of China Shipping's reserves in Shanghai after the "besieging" event in April 2020.

Yan Jianguo, chairman of the board of directors of China shipping, disclosed at the 2017 annual performance conference that CNOOC has done a lot of work in the private market, including shantytown renovation and urban renewal projects. In January 2020, China Shipping won a commercial land plot with 6.271 billion yuan, and again won two commercial and residential plots in Hongqi village with 1.413 billion yuan in February. In order to supplement the old revision map of Hongqi village, China Shipping spent more than 17 billion yuan on land acquisition in the open market alone.

China shipping has invested 60 billion yuan in Shanghai, which obviously does not need outside capital assistance. As the people in the asset management circle have said, when the wind comes, foreign capital tends to "pick up leaks.".

The logic of urban renewal

A foreign investor once pointed out that the annual return on residential investment in China's first tier cities is less than 2%; At the same time, the demand side wealth asset management is increasing, residents are allocating more and more financial assets, and diversified equity investment is increasing. From the perspective of supply side, the trend of institutionalized productization is growing“ The value of the US stock market is four times the market value of domestic A-shares, while the institutional investment is 20 times higher than that of China. It can be seen that there is a very large space for domestic asset management. "

In 2019, the direct financing sector of the financial industry once again pressed the "acceleration key": 11 measures for opening up the financial industry to the outside world, involving banking, insurance, securities companies, funds, futures, credit rating and other fields.

Warburg Pincus investment partner Zhang Qiqi pointed out that at present, domestic commercial assets are at a low price. On the one hand, the domestic property market is not mature enough; on the other hand, it is difficult to reconstruct old properties in good locations, so asset prices tend to be lower.

With the maturity of domestic capital market, recently, public REITs have been put into trial in Shanghai, which provides new conditions for optimizing capital structure for high-quality asset management platform. Yu Minjun, on the other hand, points out that the current era of asset management has entered an era of explosion. However, she also stressed that the development of any industry needs to be promoted by the government, and she expects the government to introduce detailed policies to solve the pressing problems of the industry. For example, she said that many foreign funds have exit red lines, so the length of time is a very urgent issue. For example, the lease term of Jinhe heshangcheng project is still a difficult problem in front of Jinhe asset management team: can the demolition part and the reserved part be renewed at the same time? In addition, the exit channel of urban renewal capital is narrow and the cost is relatively high, so long-term funds are needed. The funds raised by Warburg Pincus investment can basically achieve a "10 + 5" year cycle.

(residential and commercial) market is bound to be flattened. From the perspective of asset management, it's time now, and we've arranged ahead of time. "

Different from Jinhe asset management, Wensheng special opportunity asset management expects the asset management scale to reach US $5 billion in five years, and the joint venture will acquire individual real estate special opportunity assets through diversified investment methods.

One background is that in the first quarter of 2021, Shanghai's block trading market recorded a total of 23 transactions, totaling about 18.3 billion yuan. The total amount decreased by 12.3% compared with the previous quarter. However, the overall market activity increased, and the number of transactions increased by 53%, from 15 in the fourth quarter of 2020 to 23 in the first quarter of 2021. Among them, the amount of foreign investment rose sharply, and a total of 7.8 billion yuan of foreign investment was absorbed. The types of transaction assets include office, business park, community business, etc., among which community business is a new type in the eyes of foreign investors.

Ye Guoping, President of Greater China capital market department and head of China capital market department, believes that the trend of foreign capital returning to Shanghai is becoming more and more obvious. He revealed that most of the real estate funds involved in urban renewal are mainly in the way of buying low and selling high. Generally, after buying, shopping malls and hotels should be converted into office buildings, and factories into shopping malls. Therefore, foreign funds pay more attention to transaction price, land life, use of property certificate, etc.

Looking back, 10 years ago, e-commerce was just emerging. Warburg Pincus realized that this would affect China's retail market and consumer behavior, and quickly increased investment in commercial real estate and logistics real estate. At present, it has managed a total of logistics real estate with a market value of about $40 billion. Now Warburg Pincus investment has turned to the new track of urban renewal and non-performing assets. The other side of the coin is that after the establishment of two asset management platforms by Warburg Pincus, many people in the real estate industry have been asked and concerned.