The Caisse de dépôt et placement du Québec's real estate arm is plunging deeper into the volatile Chinese market by partnering with a Dutch fund manager in a $920-million (U.S.) investment in a Shanghai retail developer.
Montreal-based Ivanhoé Cambridge said on Monday it has joined with APG Asset Management NV for a "significant participation" in Chongbang Group, which specializes in the development, ownership and management of retail-anchored mixed-use projects in the Shanghai area. Details of the deal were not disclosed.
The move doubles down on Ivanhoé's modest presence in China as it increasingly ventures farther away from mature North American markets in search of emerging-market higher-growth opportunities. At the same time, Ivanhoé and other funds following similar strategies are taking on additional risk in markets presenting greater challenges outside their usual comfort zones.
"The Chinese market is obviously very volatile. Putting China into your diversification strategy looks like a natural thing to do but the Chinese market lacks transparency, it lacks the rule of law," Sylvan Adams, a respected Canadian property developer and head of Iberville Developments Ltd., said.
Ivanhoé executive vice-president of growth markets Rita-Rose Gagné said the company mitigates those risks by going to great lengths to understand the market and targeting very specific high-potential locations – such as Shanghai – as well as real estate projects showing the greatest promise.
"We're investing in something we know," Ms. Gagné said in an interview, adding that other developing economies Ivanhoé is betting on include Mexico, Brazil and India.
"Chongbang exemplifies Ivanhoé Cambridge's growth strategy of building strategic alliances with prominent real estate companies that are proven industry leaders," Ms. Gagné said in a statement.
"This investment represents a milestone in the execution of our Company's strategy of significantly increasing our allocation in key growth markets, where China is an important pillar."
Chongbang was founded in 2003 by a group of Singaporean and Hong Kong investors and is led by Henry Cheng and Stephen Wong.
Among the company's completed projects are mixed retail-hotel-office-entertainment complexes in Shanghai under the Life Hub brand.
"Chongbang sees enormous growth opportunities in the retail-anchored mixed-use sector in Shanghai and its neighbouring cities, both in terms of development of new projects and enhancement of old ones, as the region steps up its urban-regeneration programs," Mr. Cheng, chief executive officer of Chongbang, said.
Chongbang's existing partners are Singapore's sovereign wealth fund GIC and Edward Wong Group.
Ivanhoé, one of the globe's top 10 property investors, already has partnership ventures with other real estate developers in China, including Shanghai Forte Land Co. Ltd. and Bailian Group.
"Over all, I do see this as a positive move. I think there is tremendous growth ahead [in China], especially on the retail side," Queen's University's Real Estate Roundtable director John Andrew said.
"The pension funds have to be careful both in the type of real estate they're getting into and the cities they invest in," he said, pointing out the numerous abandoned shopping malls in Chinese cities that failed to show the kind of growth larger urban areas such as Shanghai – with its population of about 25 million – did.
But outside investors must be extra cautious in places such as China and other countries, given the uncertainty over such key issues as property rights, taxes and foreign exchange, said Mr. Andrew, who also teaches real estate at Queen's.
Ivanhoé had an unpleasant experience in Russia a few years ago in a joint investment with Austria's Europolis in an upscale Moscow shopping centre, a holding it ended up having to sell.