Few fund managers are in a hurry to deploy what capital they have. With the credit markets still struggling to show signs of recovery, LPs fearful about meeting capital calls and real estate prices set to decline further in 2009, GPs are more than happy to be selective over deals that come their way.
LaSalle Investment Management is one such firm after it closed its largest Asia-focused fund to date, the $3 billion LaSalle Asia Opportunity Fund III (LAOF III).
The Chicago-based firm has already deployed about a quarter of the fund, according to David Edwards, LaSalle's Asia Pacific regional director. With around $2.2 billion in dry powder, the vehicle has plenty of capital to play with in a region where distress is increasingly prevalent.
We're not in a hurry. We still have just over three years in which to invest the fund so there's time for us to look for attractive deals.
However, as Edwards pointed out: “We're not in a hurry. We still have just over three years in which to invest the fund so there's time for us to look for attractive deals.”
LaSalle is actively looking at opportunities across the region, including mature markets such as Japan and Australia. Edwards said across Asia, GPs are starting to see some “highly motivated sellers” – and not just from companies who have overleveraged themselves during the boom years between 2005 and 2007. “Stronger companies need to reorganise their balance sheets to ensure a meaningful survival, or at least a non-stressful survival, and to position themselves for growth going forward.”
This diligence by corporate entities is creating opportunities, not least in Japan, Australia and Korea, Edwards adds. In China, distress has been present for some time in the real estate space following government attempts to dampen the rising market.
The key for LaSalle and other private equity real estate firms, Edwards continued, is finding the right investment amid the distress; something that is harder than it first looks. “The challenge is finding a company with good assets that are sensibly managed with a good plan in place, and which is willing to sell down at an attractive price. That confluence of factors is extremely tough to find.”
When LAOF was launched in 2007, the real estate landscape in Asia was somewhat different from what faces LaSalle today. Edwards said debt investments were something the investment firm would – and is – actively considering, although equity positions were presenting some great opportunities.
Overall, he says, the credit crunch has lowered the risks LaSalle has to take in Asia. “We had anticipated [when we launched the fund that] we would have to take on some development risk, but the distress has meant we expect to take on less development risk and still achieve opportunistic returns by picking up existing assets with some income, but with a quirk that needs ironing out. That's a much more comfortable position to be in.”