Prime Pacific – a new entrant with major firepower

Prime Pacific landed in the UK in July this year as a complete enigma. The website is pending a rebrand, complete with a new logo and an entire reorganisation of the Hong Kong-headquartered investor-developer. This being the case, it is difficult to get under the skin of this new kid on the international investment block – not least because, on the surface, it doesn’t give much away in terms of its financial firepower. But as soon as it becomes clear that the company is partially fuelled by a tie-up with Country Garden – the world’s largest developer by sales – it’s a different story. Prime Pacific is an arm of Paladin Asset Management, one of China’s largest developer-affiliated distressed debt investors. Paladin’s association with Country Garden, which has around $160bn of total assets, facilitates the connection to Prime Pacific. “We work independently, but it [Country Garden] is our largest investor in some of our projects,” says Khoon Ng, chief executive of Paladin and Prime Pacific and former president at Country Garden Asset Management. “It’s a strategic partnership. When we have good opportunities, we approach them.” In July, Prime Pacific exchanged contracts to acquire its first UK scheme at the 54-home Brill Place in King’s Cross. Here, Ng talks about the deal and plans for future overseas investment. Casual efficiency Donning a gingham shirt and bright orange Nike Air, Ng’s style is more typical of a start-up than an international investment fund. But he is no stranger to the corporate world. He spent just under a year heading Country Garden’s financing arm, seeking to diversify funding streams in China. Prime Pacific, in contrast, relies primarily on individual private investors and its investments are opportunistic. It has around 200 employees across offices in Shenzhen in Hong Kong, Shanghai and Beijing in mainland China, and in Malaysia. It will look to hire in London too. Although it’s difficult trying to get a firm figure out of Ng in terms of the company’s overarching financials, in the UK Prime Pacific opted to partner with London developer LBS Properties and its investment arm ED Group and the jv has a target investment of $200m-$300m to be deployed over the next five years. This kicked off in July with the Brill Place deal which was seeded with a $60m investment from Prime Pacific and ED Group, enabling the first two to three projects to deliver around 300-400 units. Half of this will be sold to local buyers and half will be marketed to Asian buyers through Prime Pacific’s sales network. “London is still very attractive,” says Ng. “The investment thesis makes sense to a lot of Asian investors. It is one of those cities, an education centre, that really makes sense. “Our first transactions were in China because of the opportunity at that time in 2015,” says Ng. “Financing was abundant, capital was abundant. It was easy for us to raise money and use some of our proprietary money to lend to projects. Then we ventured to Malaysia and then we wanted to come to London.” UK debut Prime Pacific has entered the UK market as Chinese investment cools after a spree of acquisitions from the likes of Guangzhou R&F Properties, CC Land and Knight Dragon. In the first half of 2019, Chinese and Hong Kong investors made €1bn in European real estate acquisitions, compared with almost €25bn in 2017, according to Real Capital Analytics. The London launch hasn’t come as fast as Ng would have liked, after it failed to win a number of sites. “A few years back it was hard to get a good deal,” he says. “Despite all the changes and uncertainty, the seller was still very defiant and everyone was competing. “We tried to work on a number of projects that didn’t materialise, then we decided to have a joint venture. The market has become a lot tougher, it makes sense to collaborate.” [caption id="attachment_997229" align="aligncenter" width="847"] Street savvy: Khoon Ng’s London team[/caption] Barriers for Asian buyers While the appetite for luxury London residential may well be strong, a number of economic and political challenges have resulted in severe declines in Asian investment. In the first half of 2019 the proportion of prime central London purchases from Asian buyers fell to just 6%, according to Hamptons International. This followed steady climbs from 4% at the end of 2015 to a peak of 21% in the second half of 2018. Ng says currency controls have put a squeeze on capital outflows. “It has been stricter for our Chinese contacts, that is a fact,” he says. “But there are legitimate ways for people to invest, for example if they have children studying overseas.” He says many parents are looking for homes for their children during university and, in the meantime, they can be used for holidays. Its schemes will include a service element, helping buyers to maintain their property, rent it and even facilitate travel. “The days where you build and are able to sell the next day, week or month are gone,” says Ng. “We need to provide more services to the homebuyer in order for the project to do well.” Prime Pacific will face another challenge in the short term: buyer apprehension in the lead up to a potential no-deal Brexit. “Investors are waiting for the 31 October decision. A lot are sitting on the fence,” says Ng. “We have a lot of homebuyers who we deal with in Asia and they just want the uncertainty to be removed and then they can plan accordingly.” This means that in the short term, Prime Pacific will focus on acquiring new developments, with sales to follow before bringing more capital into the fund.  “This is not the right time to go to investors,” says Ng. Rather, as the pound depreciates, with the prospect of improved market certainty come 31 October, now is the time to buy. Acquisition mode Knight Dragon’s two-year stalled 67-storey tower at Spire London, the ongoing delays at Battersea Power Station and sliding resi values at Nine Elms might deter some buyers, but not Prime Pacific. The jv is on the hunt for more central London schemes and hopes to make a second acquisition this year. It is looking at consented sites of around 50-200 flats to deliver a high-end product, with sales values anticipated at around the £1,000 per sq ft mark. So what makes Prime Pacific so sure it can survive where others have stumbled? “We partnered with a local partner (LBS Properties),” says Ng. “The most important factor there is that we have our different skillsets and we complement each other.” This means that LBS handles the development and Prime Pacific looks after the sales. Ng says its target schemes are significantly smaller than other Chinese developers. Take its Country Garden partner, which entered the UK last year, scooping up the 785-home Ailsa Wharf on Bow Creek. “We shy away from that kind of product because it requires a lot of buyers which, because of the capital control, is difficult enough. We also think the £2,000 per sq ft and above luxury market is a difficult market.” Ng says the business plan has a “built-in safety net” in terms of the size of schemes. He says: “At the end of the day, that’s something we can clear, even in the event of a no-deal Brexit.” The schemes are a fraction of the size of the typical investments that Prime Pacific would make in China. Those developments are typically out-of-town, of at least 1,000 flats and target far lower sales values. Prime Pacific’s property investment in Asia has focused on mezzanine debt funding and non-performing loan funds, picking up distressed debt from smaller developers, managing the asset and then selling it on to Country Garden and others. Ng is chief executive of Paladin Asset Management, the parent group of Prime Pacific, which is one of China’s largest developer-affiliated distressed debt investors. But, he says he is committed to the jv structure and is not seeking to pick up bad debt in the capital or develop a project independently. “That’s not our strategy to come and develop a project and manage it ourselves,” he says. “It’s just too costly and it’s such a long learning curve for us. We can do it in Asia but not in London.” Ng is confident that regardless of fears over Brexit, currency controls, stamp duty and for-sale headwinds, Prime Pacific will be able to provide premium products and the sales to match, ultimately scaling the business. “We are focusing on a market where we think we have a competitive advantage – that is our network in Asia to sell to. From an investor’s perspective, London is attractive, they just need to wait for the right time to come.” To send feedback, e-mail emma.rosser@egi.co.uk or tweet @EmmaARosser or @estatesgazette