In the past, one could always assume with reasonable accuracy that when a large, multi-million dollar tract of land was sold, it was bought by institutional investors. Lately, though, many large tracts of real estate in Australia are being sold not to institutions but to family groups and individuals with “ultra high net worth (UHNW),” defined as assets of $30 million or more.
For example, an office building in Elizabeth Street in the CBD of Sydney attracted bids of more than $100 million from UHNW Asians. Alistair Meadows, who is the head of Asia Pacific, an international capital group based in Singapore, says that it is now commonplace to see properties worth $100 million or more bought by family groups or UHNW individuals.
According to Meadows, the nine-figure end of the market used to be inhabited exclusively by institutional buyers: managed trusts, private equity groups or listed companies. Now, families and UHNW individuals are carving out a very good market share.
Bright Ruby Resources, a private investment company in China, is one such family group. They are owned by the Du family, based in Shandong. In the last 12 months, they have purchased two buildings in Sydney worth a combined $264 million. They were also reportedly looking to place a bid for an office block in George Street for over $500 million.
Bright Ruby would go on to pay the most money ever paid in Singapore for any piece of commercial real estate when they paid $1.04 billion to buy the Grand Park Orchard Hotel, which also has retail shops. Sources in Singapore report that the purchase may have been a joint venture with other UHNW’s from China.
In the US, another UHNW from China, SOHO China founder Zhang Xin, bought 40% ownership of the GM building in New York. In London, Singapore billionaire Kuok Khoon Hong and Indonesian billionaire Martua Sitorus spent $518 million to purchase the Aviva head office last June.
According to many business people who have had dealings with UHNW investors, real estate makes up a large part of their portfolios. According to the Wealth X-UBS Billionaire Census, published in November, real estate is the top passion of billionaires, ranking ahead of travelling and golf respectively.
Australian real estate seems to rank #3 for UHNW investors, trailing only London and New York. John Talbot, who is the Managing Director for Investment and Advisory Group of Jones Lang LaSalle, says that UHNW individuals with over $100 million to spend are becoming increasingly common.
According to Mr Talbot, UHNW’s look for buildings with the potential to be redeveloped and invest in them through their family businesses. Property development is a favourite because of its opportunity for high profit margins.
Recently, an Asian UHNW spent close to $60 million for a shopping centre in Sydney’s north-west. In two separate transactions, two different Hong Kong UHNW’s are spending $40 million and $45 million for two Sydney office blocks.
Dominic Ong, with Knight Frank in Sydney, is their Director of Asian markets. Currently, Ong is sourcing hotels, shopping centres, office towers and development sites for as many as 20 UHNW investors whose expenditure levels range from $20-$100 million. Ong fully expects these investors to seek multiple investment opportunities in Australia.
New Money vs Old Money
According to Daniel Harel, who is currently the head of the UBS Global Family Office’s South East Asia division, says that most of the UHNW’s from Asia represent “new money” and are looking for returns in the 10%-15% area.
According to Harel, “old money” families are typically from Europe and seek investment with long-term cash flow and appreciation. New money UHNW’s from Asia tend to look for emerging market trends. They are currently investing in agribusiness and sectors that stand to profit from an ageing world population, such as healthcare.
So far, there are only six large commercial real estate transactions involving UHNW’s in Australia but the transactions have been prime commercial investments. In addition, UHNW’s are buying up some of Australia’s best residential properties, including Sydney’s waterfront mansion called Altona in Point Piper. A Melbourne mansion in Toorak sold for over $20 million, which was the highest residential transaction in the city’s history.
What Does this Mean to You?
As mortgage brokers, this excites us because it tells us that the world’s most successful businessmen see real estate as THE prime investment over all others. Maybe it’s time to start considering a home loan for your first investment property in Rockingham, Baldivis or Kwinana.