Cambridge Associates touts pop-up real estate opportunity in China

In an environment where asset owners increasingly say they are looking for fast-moving, time-limited opportunities to secure investment gains, Adji said Chinese property companies now did the trick.

With tens of billions of dollars in debt maturing and the region’s major banks constrained in their ability to provide new loans, direct loan managers have become “the only game in town” for stressed Chinese property developers, did he declare.

And for the coming year or more, the pickings should be lush. With the ranks of real estate company founders looking to “pull a rabbit out of their hats” as those loan repayments come due, and the number of direct loan managers with the capabilities to effectively compete in the space yet limited, “we are entering a market where you can name your price,” Mr. Adji said.

The current moment can be seen as the “first leg” of a game that could well be played in as little as 12 to 18 months, with most of the mountain of debt these companies holding falling due over the next 12 months, Mr. said Adji.

Against this backdrop, mainland developers who previously would only have offered their office assets in Beijing or Shanghai as collateral are asking, “What should I give you (in exchange for a loan)…and what we tell them “Do we want your assets in America, Canada, Hong Kong and Singapore. Have you got some? That’s what’s happening on the pitch,” he said.

And the clock, argues Mr. Adji, is ticking. “We believe the opportunity is likely to decline significantly in about 18 to 24 months…or at least the lower of the (low) hanging fruits, so we are telling our clients now is the time to act,” did he declare.

At present, demand still far outstrips supply and early adopters should be rewarded, Mr. Adji said. “When you see the wall of money coming” in 12 or 18 months, “We’ll pull out. It’s about being tactical…it’s not a multi-cycle opportunity,” he said .

Cambridge Associates, meanwhile, has identified between five and 10 direct lending fund managers with “very different skill sets” needed to identify and execute cross-jurisdictional transactions, Mr Adji said. He declined to name them, calling this programming his company’s “secret sauce”.

One of the qualities these managers share is the ability to be agile and make quick decisions. “When you’re talking about lending to these borrowers at…up to 15% interest, they usually need the money yesterday (and) you need to be able to disburse the capital in two weeks,” Mr. Adji.

This leaves top managers, with multiple committees who must sign an agreement as well as headquarters in New York or London who must weigh in, at a disadvantage, he said, noting that a number of managers on the Cambridge Associates’ list broke out of the big fund companies in order to set up a more streamlined structure.

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