Warburg to Build $5 Billion Distressed Property Manager in China

(Bloomberg) -- Warburg Pincus is creating a Chinese asset management company to invest in distressed real estate opportunities, with plans to garner $5 billion in assets in five years.

The U.S. private equity firm will work with Wensheng, one of the largest special situation asset managers in China, to create a joint venture focusing on real estate special situation investments, including distressed assets. The two will commit as much as $600 million, according to a joint statement on Monday.

Warburg Pincus is tapping into the growing sector of distressed asset investment as more Chinese property companies feel the strain from tighter liquidity and policy curbs. High debt levels and a government deleveraging drive are pushing more developers to sell assets.

“In light of the ongoing financial reform in China and the continued regulatory development, the real estate special situations sector is entering an accelerated growth trajectory,” Zhang Qiqi, managing director of Warburg Pincus, said in the statement.

Warburg Pincus joins foreign companies including Blackstone Group Inc. and Brookfield Asset Management Inc. in hunting for opportunities in China's distressed real estate sector. The new joint venture, Wensheng Special Situations Asset Management Co., will focus on acquiring single real estate projects from troubled owners. It has already prepared some in Shanghai, Zhejiang and Hainan.

Warburg Pincus is one of the largest private equity firms in real estate investing in Asia, with more than $6 billion invested in 36 companies since 2005.

Wensheng established its distressed real estate practice in 2017. The company, founded 15 years ago, had 95.5 billion yuan ($14.8 billion) of assets under management as of last year.

With assistance from Bloomberg