I was excited like sea as I recognized the storm

 

 

I

 

Xu Yafeng, who looks very young, is actually an "old man” in both Gemdale and finance field.

 

Graduated from Business School of NanKai University, Xu Yafeng has served as assistant general manager of capital management department in Gemdale Group, head of board office, executive director of WINS Investment and a member of investment committee, etc., in succession. At present, he serves as general manager and president of WINS Investment, Gemdale Group.

 

Gemdale has always been pursuing "One Body and Two Wings” strategy. One of the wings is finance.

 

Ithas many achievements.

 

Ten years ago, it set up the first standardized real estate dollar fund in China jointly with UBS; the capital operation of Gemdale's acquisition of listed companies in Hong Kong; Gemdale's joint venture with Morgan Stanley; the establishment of RMB non-directional equity fund; and leading the ABS products of the first cultural innovation park in China. etc.

 

Originated from Gemdale, one of the "four gentlemen” of Chinese real estate, the core advantage of WINS runs through the whole chain of "raising, investing, managing and withdrawing” of real estate funds.

 

For example, WINS always sets up non-directional equity funds from the first USD fund to the first RMB fund. This is investor's recognition and investment commitment when there is no specific project.

 

Generally speaking, it takes a long time from product design, to road show, to investor locking, and the period of fund raising also takes at least a few months. If we wait for the settlement of each project before financing, it will cause mismatch and passivity.

 

while, the non-directional fund is to lock in investors in advance, that is, to get investors' approval and investment commitment before looking for and implementing projects. Such a model enable quick decision-making and landing projects so that we will gain the first chance in the competition.

 

Xu Yafeng said that although it is an internationally accepted investment model, it is not easy to raise non-directional funds at home, which mainly depends on brand, credit, team and performance reputation.

 

Fortunately, this is the strength of WINS Investment.

 

“We should give full play to our respective advantages in the cooperation. For example, the other party has land resources or at least land information, WINS has financing and energization.” Xu Yafeng told us that partners value WINS’ product lines, standardized management, strategic procurement and brand premium besides capital.

 

 

II

 

The WINS Fund has been developed because, first, the general trend makes it so, where the living space and ability of small and medium-sized developers are squeezed; second, to export system capabilities by means of Gemdale’s platforms such as agent construction companies and regional companies; and third, with the system capability, we start with the product positioning to participate in the project operation cycle to ensure the normal operation of the project and improve the return rate.

 

In the past deCapitaland, development projects have accounted for the vast majority of investment, which is based on the background of WINS and the “golden age” of incremental development of China's real estate industry.

 

Although development makes a good return for investors, the asset management scale will be reset after the project is sold.

 

Therefore, the real estate private equity fund is only a “younger brother” role in terms of its share in China's real estate financial map. More important than the amount of scale is its development path and direction.

 

So, do we negotiate financing after taking the project, or do we get investors' solemn commitment in advance? Which will add value and empower the project, to be a simple financial investor in such an indifferent environment, or to be an all-around player? Which model will we choose when making asset securitization, a traditional fixed model that must rely on credit enhancement, or an international model of creating future returns by means of operation management and value enhancement to win confidence in the capital market?

 

If you put these problems on the level of corporate vision, it will become a straight question: Do you want to be a shadow bank that eats leftover and cold meal in the continuously changing policy cracks, or become a pioneer and practitioner in the second half of the real estate industry?

 

Xu Yafeng's answer is the latter.

 

WINS's evolutionary road map is to move from a mode of running development projects and leaving after “payment” at the end of sales to a comprehensive development mode that combines development, operation and capital operation. In this respect, we can learn from the outstanding experience of Tishman Speyer, Capitaland and business models of other excellent international enterprises.

 

This model requires two prerequisites. First, in terms of business model, we should be able to match the best capital operation model for different types of strategies and project types, such as possessing ability of value discovery and value creation for real estate private equity investment funds and financing models for opportunistic, value-added and core assets and strategies, and even holding capital operation and withdrawal channels for a long time such as REITs; second, at the level of capital operation mechanism, making flexible use of complementary advantages between private equity funds and asset securitization platforms in the capital market to form the whole industrial chain model of real estate capital operation, maximize the efficiency of capital and asset operation, create value for investors, improve the development speed and create a brand of sustainable development.

 

If the best financial products can be operated flexibly and effectively in the capital market, and the mature holding property is “withdrawn” by securitized products, the real estate enterprises and funds with operating properties in hand can continue to be operated and managed to maximize the sustainable income by the time accumulating the management scale.

 

Unfortunately, although equity financing is the sweet area encouraged by the policy and the development direction of the international mainstream, it is also one of the biggest difficulties in China's real estate finance due to various reasons, especially the public-funded REITs.

 

 

III

 

Instead of waiting passively, WINS chose to give a try.

 

In August last year, the “Harvest-Gemdale No.8 Bridge Asset Support Project", referred to as “No.8 Bridge ABS", was successfully listed on the Shanghai Stock Exchange. WINS Investment acted as a trading consultant and general coordinator.

 

Many characteristics of this innovative product have laid a good foundation and market influence for the development of WINS Investment in the field of real estate financial innovation.

 

1 Innovation: it is the first ABS product of cultural innovation park in ABS history in China, realizing the unsecured financing mode of “light asset” products.

 

2 Efficiency: The underlying asset is the rental income for the next 8 years for a specific area of the project. It is fully justified by the effective demonstration of cash flow and strong asset management ability to obtain a healthy and effective financial leverage and form an efficient financial model for the sustainable development of “light assets” cultural innovation park products.

 

3 Quality: the renovation project in the core area of the first-tier cities is located in the earliest and symbolic gathering area of Shanghai's innovation industry. It has been operated for more than 10 years, which is a classical case of achieving urban renewal and value growth through excellent asset operation management.

 

The significance of this case is threefold.

 

For enterprises, it optimizes healthy financing mode and the efficiency of fund use. For business, it provides a model of sustainable development for product securitization of “light assets” projects such as industrial parks, joint offices and apartments. For the capital market, through a large number of demonstration at the project level, it has contributed to the development of pure REITs products.

 

 

IV

 

When we rejoice in the success of No.8 Bridge ABS, we should also see its particularity. This is an attempt in China's capital market when securitized products is “immature”, and it is also the result of the strong cooperation of all parties involved in the case.

 

Gemdale's market credibility and financial strength, as well as its rich experience in the capital market, have played a strong supporting role.

 

As a real estate finance team with Gemdale background, relying on Gemdale's core competitiveness and brand influence, WINS has been striving to create a sustainable financial brand in the real estate finance field. On the one hand, we create competitive returns for investors of real estate private equity investment funds; On the other hand, we always insist on innovation and strive to provide investment channels of REITs products for stable diversified investors in the future.

 

In terms of city size, population size, economy size (especially real estate market size), the American market is highly contrasting.

 

The United States is the most developed country in REITs (Real Estate Investment Trust). Almost every real estate category has corresponding securitized products.

 

Office buildings, apartments, hotels, shopping malls, nursing homes, parking lots, hospitals, government offices, warehouses and even prisons and communication towers can all be placed in REITs' magic boxes.

 

American REITs absorb 8 %-9 % of the total national savings. In China, even if similar-REITs are included, this figure is less than one in ten thousand of the total savings.

 

 “You can see how much space there is in the future!” Xu Yafeng was very excited. As Rilke said: I was excited like the sea as I recognized the storm.

 

The advantage of REITs is that in the future investment enterprises will form a large-scale platform effect by building up the scale of asset rights and interests, and form complementary capital operating model with traditional capital operating mode, not only develop on debs. Therefore, there is a very large prospect of Chinese REITs market.

 

Some foreign investment institutions also have relatively mature development models in this field, such as Tishman Speyer and Capitaland. What Tishman Speyer did was mostly a landmark complex; forming a complete investment chain. Capitaland's model is to use private equity funds to buy land or invest in incubating products, holding commercial assets after development and transformation, and put them into REITs.

 

Xu Yafeng hopes that WINS creates a more comprehensive private equity fund management platform, changing from a relatively passive financial investor to an active asset manager to make a good project with its core advantages and combination of its own advantages and characteristics.

 

 “Our initial intention is not to take a ‘commission difference’ type of fixed income, but to create more added value for the project, that is, to return to the basic concept of equity investment."

 

In Xu Yafeng's view, if the dream comes true, it will be a new golden age for real estate in China and an opportunity for WINS, because “whether you invest in private equity funds or buy public offerings, you must rely on professional fund managers".

 

 

V

 

From Xu Yafeng's point of view, for China's real estate investment, the difficulty is like mountains; opportunities is like lighthouses and vision is blue sea.

 

The difficulty lies in:

 

First, with house prices controlled by high land prices, trading opportunities for business development are increasingly difficult to find. Under deleveraging, equity financing in the capital market is as difficult as Road in Sichuan. However, the asset-liability ratio of real estate enterprises is already too high, making debt financing even worse.

 

Secondly, from the point of view of people's investment, common investment products are stocks in addition to real estate. However, there are two major obstacles to investing in real estate, one is tight regulation and the other is high house prices, which are inaccessible to ordinary income earners. The volatility of stocks is too great, and there are too many lessons paid for “with blood”, but to buy private equity products, only industry experts can do so.

 

 “There are very few products available with one million in hand.” Xu Yafeng believes that China lacks equity products with clear and understandable asset status, investment “close to civilian” and stable returns.

 

Although various attempts have been made at asset securitization, it is still difficult to do the equity category at present. Most of ABS's priorities are essentially creditor's rights.

 

In Xu's view, if core assets (such as high-quality properties) can issue standard products such as ABS or public offerings REITs, their annual rental dividend is actually higher than that of many companies.

 

The opportunity lies in:

 

With the transformation of China's economy, the transfer of China's industry and the improvement of transportation facilities, many inland core cities are also developing rapidly, and the real estate development business is moving from coastal cities to inland cities in the central and western regions. Compared with the traditional coastal first-tier and second-tier cities, with the development of the city entering a mature stage and the adjustment of urban supply and demand, there will be more times for stock assets and urban renewal.

 

Facing such change, Xu Yafeng proposed "Dual-wheel Driving”investment concept—at first, in the development stage, we invested funds at a certain scale into the project through private funds and then developed, or transformed and operated the project; Secondly, after assets formed relatively stable cash flow in stock market, we would withdraw from capital market through asset securitization.

 

Especially for the holding assets in the stock market, Xu judges that there will be an opportunity to revalue them in the next two or three years. "In the past, the real estate was valued almost based on selling price. There was few opportunities to focus on matters of long-term cash flow and revenue withdrawal for holding, such as transformation, operation and continuous value improvement.” For the stock assets, due to entrance of major force of institutional investors, the pricing of future valuation of holding assets by capital market would reverse the current earning value of the assets and then price the assets. The whole market will also gradually return to a rational, healthy and benign development trend.

 

The vision lies in:

 

On the positive side, once conditions are ripe and China's capital market is open to securitized products, China's real estate investment will lead to a boundless sea of steady investment and form a win-win pattern.

 

The capital market will increase a steady investment variety. For residents with investment needs, they can have an additional investment channel that is safe, stable, lasting and moderately profitable. For fund companies, they will be bigger and stronger with ability to provide reliable professional services. There are many investors and a large amount of capital in the capital market, so assets will get better prices. The capital market is relatively standardized, and products will get higher ratings and lower financing costs. For example, the cost of securitization can be about 5 %. In the case of private equity, the cost is at least 10 %. Investment products is changed from the non-standard to the standardized; and banks, insurance and pension funds can be bought, which will expand the base of sub-investors.

 

Therefore, we believe that we will reach the vast blue sea only when we climb over the mountains and head for the lighthouse.