In the recent 14th Five-Year Plan, “houses are for living instead of speculation” is mentioned again. Under this new normal of regulation and control, how should institutions of real estate investment actively seek investment opportunities in the market? Recently, Xu Yafeng, president of WINS Investment, was interviewed by Zhonghongwang.com and had a dialogue with the reporter on this topic.

Zhonghongwang.com Shanghai, Nov. 24 (Reporter Zhou Hanxin): As one of the “2020 Most Influential Real Estate Funds”, WINS Investment is an alternative investment institution focusing on investment management of domestic and international real estate market. It is funded and established by Gemdale Corporation, a leading domestic listed company of real estate. It is an important part of Gemdale Corporation's “one body, two wings” strategy, with branches in Beijing, Shanghai, Shenzhen and Hong Kong.

From its establishment of the first USD fund in cooperation with UBS and its successful collection and investment of more than USD 200 million, in the past decade or so, WINS Investment has been operating as an independent strategic vehicle for the real estate investment business of Gemdale Corporation, focusing on equity investment in residential development projects and the “investment + construction” business model in collaboration with Gemdale Corporation. On the other hand, it explores a comprehensive business system including urban renewal fund, core value-added fund, old-city renovation fund, overseas investment fund, asset securitization and other businesses. It has also built up a multi-channel and multi-level capital source by cooperating closely with international institutional investors, first-tier domestic insurance companies, asset management companies, major commercial banks, trust companies, securities companies, public funds, etc., and combining its own capital and investors and strategic partners' investments.

Xu Yafeng, who is currently the managing director and president of Gemdale Corporation WINS Investment, the director of China Real Estate Industry Association, and the vice-chairman of the Real Estate Finance and Housing Fund and Guarantee Research Sub-Association of China Real Estate Industry Association, was involved in the establishment and launch of the first standardized real estate USD fund in China with Gemdale Corporation and UBS Global Asset Management Group as the fund co-managers. He was responsible for the capital operation of Gemdale Corporation's acquisition of a Hong Kong listed company and the joint venture cooperation between Gemdale Corporation and MorganStanley. Recently, Mr. Xu Yafeng was invited to accept an interview with the reporter of Zhonghongwang.com. He believes that “The investment industry is a long-run concept. We should adhere to a good investment logic, not reach an ambitious goal in a short term, cling to our own speed, give play to our own strengths, adhere to our own determination and make a long-term career.”

Xu Yafeng, President of Gemdale WINS Investment

Responding to market changes and developing a diversified and integrated business system

In the recent 14th Five-Year Plan, “houses are for living instead of speculation” is mentioned again. Under this new normal of regulation and control, we should comply with the regulatory requirements and actively seek investment opportunities in the market, with more diversified investment methods and more robust investment strategies. As the alternative investment sector of Gemdale Corporation, WINS Investment has accumulated more than ten years of market judgment and project control experience, and is capable of effectively integrating industry resources with WINS's core strengths.

In recent years, WINS Investment has devoted itself to developing a diversified and integrated business system centered on key business models such as equity investment in residential development projects in first-tier and second-tier cities and strong third-tier cities, old-city renovation funds, urban renewal funds, core value-added funds and asset securitization. Equity investment projects oriented to development and the “investment + construction” model in collaboration with Gemdale Corporation will remain important investment directions for WINS Investment in the future. We will launch our cooperation with small and medium-sized developers to give full play to WINS's core strengths in resource integration, financing capability, brand premium and active management.

In terms of stock market, the old-city renovation fund focuses on investment opportunities in urban economic clusters such as the Greater Bay Area, Beijing-Tianjin-Hebei, Yangtze River Delta and second-tier provincial capitals with potential. Urban renewal fund will be invested in offices, industrial parks, community commerce and long-term rental apartments in first-tier cities and new first-tier cities where the new economy is relatively developed. Core value-added fund will focus on community commerce, industrial parks and small complexes with demand potential and room for value enhancement, etc. After acquisition, the assets will be empowered through operational transformation of the assets, so that the assets can be enhanced in value.

In terms of financial innovation, asset securitization represents in-depth linkage between WINS Investment and Gemdale's various business lines, aiming to create a complete closed loop from property project acquisition, financing, management to exit through ABS, CMBS, quasi-REITs, REITs and other financial tools with the help of the capital platform.

Enhancing asset value through “precise investment, careful positioning and fine operation”

When it comes to real estate funds, people usually use “fundraising, investment, management and exit” to measure the comprehensive capability of a real estate fund company. In fact, “fund raising, investment, management and exit” constitute a systematic and complementary capability, but they also have different requirements and focuses of skills and capabilities. The investment link is to evaluate the risk and return on investment of the project from the perspective of the buyer's market. The exit link is to have a full understanding and knowledge of the counterparty, and to control the equivalence and balance of risk and return from the perspective of the seller's market. All links of “fundraising, investment, management and exit” require the professional ability and long-term attention of the core professional team. From positioning, investment, operation, renovation, to marketing and exit at the end of the process, we should carry out fine coordinated management to give full play to the maximized value of asset management efficiency. Through precise investment, careful positioning and fine operation, we focus on tapping the asset efficiency and creating fund value. In the current market environment, when facing various real estate sectors and various links of fund raising, investment management and exit, we should cooperate with professional teams in each segment to form complementary and synergistic development of their respective advantageous resources.

Creating a “PE+REITs” two-wheel drive model

According to Xu Yafeng, the assets currently held by WINS are in the operation and holding period, and have not yet reached the exit stage, “Ideally, our strategy is to be able to release a REITs product by packaging the assets, so that we can really achieve REITs exit. The ideal state in the future is that we can create a 'PE+REITs' two-wheel drive model.”

First, in the pre-development stage of the project, we can invest a certain scale of equity capital in the project through private equity funds in a legal and compliant manner, and then go on to acquire, renovate, add value to and operate the project. Second, in the project holding stage, after the assets have formed a relatively stable cash flow, we can realize the exit in the capital market through asset securitization, and open up the public offering market under the circumstances permitted by the policy, so that it can become a stable income product that the public can buy. It is also one of the main strategic directions that WINS Investment has explored in its research to truly connect the four links of fundraising, investment, management and exit, introduce different investors at different stages, and choose public offering at the stabilization stage.

The significance of REITs for real estate investment in China

This year, the domestic pilot project of infrastructure public-offering REITs officially kicked off, and Xu Yafeng analyzed to the reporter its significance for real estate investment and corporate financing.

First of all, REITs can provide a greater choice of financing and exit for property holdings, and are a better means of capital operation on the real estate stock market. Based on the operating experience of mature international markets, the advantages of REITs after forming the platform effect, such as the effect of the portfolio strategy of asset package, diversified financing tools and lower financing costs, will be of more strategic importance to the sustainable and stable development of the platform of investment management and the utilization efficiency of the high capital turnover of the original equity holders and sponsors.

Second, standardized public-offering REITs will actually provide opportunities for a wide range of investors to invest in real estate inventory assets. At present, this launch of infrastructure REITs will be largely dominated by the participation of institutional investors in the short and medium term, while a well-balanced match of debt and equity-type capital investment combined with the characteristics of the assets and products should occur on the investment side of a more mature market, providing opportunities for investments of different strategy types and risk-return requirements to participate and then circulate freely in the capital market. On the asset side and investment side, public-offering REITs have huge room for development in China, while the participation of a wide range of investors through the asset market will make excellent assets and teams more confident, with undesirable projects facing greater challenges and pressures. Public-offering REITs are not a universal exit tool, but a financial product with a higher degree of transparency and marketization.

Third, REITs place higher requirements on the quality of assets, acquisition and operational management capabilities. The guidelines for infrastructure REITs adhere to equity orientation and market principles, and clearly meet the requirements for independent and stable cash flow and structured “risk segregation” of assets, which are in line with the definition and characteristics of standard REITs in international mature capital markets, and will more effectively promote the establishment of a benign development mechanism for stock assets of real estate. 

For the future, Xu Yafeng said, “The development of equity investment projects and the ‘investment + construction’ model in collaboration with Gemdale Corporation are the core businesses that WINS has always focused on and has a relative advantage in, and will continue to focus on in the future. For the stock market, in the first-tier cities and new first-tier cities where the new economy is relatively developed, industrial parks, new office, community commerce and long-term rental apartments with demand potential and value enhancement space will be the key investment categories that WINS will focus on.”