Blackstone buys sizeable land parcel in China

Blackstone Group LP, one of the world's largest private equity firms, has made another major investment in commercial real estate in China, this time a sizeable parcel of land in Nantong, Jiangsu province.

The investment, made through a real estate fund owned by Blackstone, was in cooperation with China Resources Land Ltd, a source close to the deal confirmed.

The investment, worth more than 3 billion yuan ($482 million), involves 600,000 square meters of land in Nantong, an industrial port city at the mouth of the Yangtze River.

It was finalized in October, and has now been given Ministry of Commerce approval, the source said.

The price tag means the land was sold for roughly 1,300 yuan per square meter, a very attractive price given the location.

The latest move follows Blackstone's recent purchase of an office block in Shanghai, together with Ting Hsin International Group, for around 2.3 billion yuan, or around 49,000 yuan per sq m.

The source added the PE giant plans to start raising capital for an Asia real estate fund soon.

In October, Blackstone announced it has closed its latest global real estate fund, Blackstone Real Estate Partners VII (BREP VII). The fund raised $13.3 billion over 13 months from more than 250 investors globally.

Commenting on the latest purchase, Grant Ji, a senior director in the investment department of real estate service provider Savills Property Services (Beijing) Co Ltd, said: "It is a smart deal as the land cost is pretty low. And Blackstone has found a strong partner.

"As the investment is in a third-tier city, the investment should be considered a long-term one, betting on the country's quickened urbanization process."

John Zhao, CEO of Chinese private equity firm Hony Capital, said any investment related to urbanization and consumption upgrading will offer lucrative opportunities for private equity firms, and the Nantong deal includes both two factors.

Zhang Ping, the head of research at the international real estate service provider Cushman & Wakefield, said that he expects such foreign institutional investment interest in Chinese commercial property to continue apace.

"The buying opportunities in the first-tier cities, especially Beijing, are limited due to the government's strict control on their capital flow into China and the limited supply of office buildings," he added.

Warburg Pincus LLC, one of the largest private equity firms in the United States, has just bought a stake in the Chinese commercial property management company T&C Asset Management Consulting Ltd for an undisclosed amount.

T&C's Managing Director Tang Yao said that commercial property in China's first-tier cities, and those with a primary location in second-tier cities, also remain good choices for investors.

"Though there has been a growing rush of capital into the commercial property sector since the government tightened the policies in the residential market, the risks of projects in those cities are still limited," said Tang.

He added that the Yangtze River and Pearl River deltas are still foreign institutional investors' favorite regions, while many still remain active in Beijing, Dalian, Shenyang and Tianjin.

"Interest will continue in commercial property, while concerns remain about investment opportunities in the residential sector," Tang said.