Citi Private Bank links co-investing property players with private investors, writes Alex Catalano
Citi Private Bank puts together UK real estate clubs and Asian funds for its wealthy clients. The bank concentrates on those with $25m-plus of assets and seriously rich cross-border private clients, some of whom are prepared to spend anywhere from £20m to £200m on a property. In recent years, many of its Asian clients have teamed up with friends to buy property in the UK, only to realise that they needed to be much more involved in managing their investment.
Kwang Meng Quek, co-head of the global real estate group at Citi Private Bank, says: “We came up with a club structure, with a local developer or property manager that has a very good track record, who is very in tune with a specific market or sector and can source a lot of deals. “They would be putting their own money into the deal and looking for a small group of participants.”
Citi’s UK team assesses potential partners, the prospects of their particular market and how they are positioning themselves. “Mostly we have concentrated only on those who have skin in the game, because otherwise it is hard to convince people to invest,” says Quek. “We have identified one or two who have a very good track record and want to scale up. They do multiple investments, so that is why we stick with them.”
The UK clubs involve more opportunistic investments, such as developments or refurbishment. Citi’s clients also like real estate funds, but favour niche or specialist vehicles over funds-of-funds, which they perceive to be too remote. According to Quek, they increasingly prefer developer-managed funds to ones run by banks, financial institutions or big-name asset managers.
The financial crisis has made high net worth investors leery of the latter, whose fund managers often have very little equity at stake and may be less specialised. “A developer who has a fund typically puts a lot of skin in the game – 20-30% or more,” according to Quek. “These are the people that will make it and are there for the long term.”
Team-ups with Asian developers
Citi has been setting up just such developer- managed funds for its clients to invest in Asia for the past six years. In Asia Pacific, unlike more mature markets such as Europe and the US, the market is not yet dominated by big, institutional funds; the players are usually developers themselves. In China, it teamed up with Ascott Group, which develops serviced apartments. Citi has also set up property funds with the mainly state-owned China Resources, which is building and managing large shopping centres there.
“When we find someone with a very, very good, convincing story of where they are going in the next five to 10 years, we will see if our clients subscribe to the same philosophy,” says Quek. “If we get positive feedback, we start working with the developer to convert them into a fund manager.” “Once we have done that, we go back to our clients and say: ‘You liked this style and strategy, this is what they’ve done, this is their track record, would you like to invest in them?’ And usually they say yes.”