JD Capital Helps Enterprises Stand out with Enhanced Operation in Commercial Real Estate Sector Feat
2016-09-23
Under the new normal of China’s economy, commercial real estate businesses are faced with pressure from oversupply, e-commerce, and other aspects. Meanwhile, however, offline commercial chains are embracing valuable development opportunities contributed by the explosive growth of various business modes in the commercial real-estate industry thanks to consumption upgrade.
Against such a backdrop, JD Capital will, in cooperation with multiple consumption service companies and financial institutions, provide all-round solutions for commercial real estate enterprises by combining capital management, business operation, and internet application. The one-stop solutions integrating financing, investment, management, and withdrawal are based on JD Capital’s insights on the consumer sector as a company dedicated to private equity investment, with an aim to help investees become leaders in the real estate industry and to create win-win situation in an era featuring commercial real estate de-stocking and stressing operation.
Recently, MA Zhantian, head of JD Capital’s commercial real estate team and managing director of the commercial real-estate fund of JD Capital, shared in an interview the company’s insights on risks and opportunities the commercial real estate sector promises.
Industry reshuffle redefines value of high-quality commercial real-estate projects
After years’ rapid growth in China’s commercial real estate sector, the value of different commercial real-estate projects starts to diverge. While a large number of shopping malls are to be eliminated, quality projects still contain enormous growth potential.
The commercial real estate segment represented by shopping malls has delivered a leapfrog growth since 2010, propelled by local governments and the real estate sector. As of 2016, the number of shopping centers nationwide reached 4,700 and there are many a projects still under construction. At this growth rate, the number is expected to exceed 10,000 by 2020 and the entire market should be saturated then.
Land acquisitions by Wanda, COFCO, and other powerful real estate players across the country including in many tier-3/4 cities theses years have made the competition in the commercial real estate segment fiercer. Moreover, the booming e-commerce platforms such as Alibaba and JD.com have inflicted a heavy toll on offline businesses. It is foreseeable that due to the surplus both online and offline, the development of the commercial real estate market will be heavily dependent on well-functioning operation and rapid de-stocking.
However, JD Capital believes that the commercial real estate segment still enjoys enormous growth potential in the era of rapid de-stocking.
MA pointed out: “Speaking from the long cycle of the sector’s development, periodical fluctuation of markets always ends with oversupply. However, as the impact of e-commerce on offline businesses is limited, the value of shopping malls as the core “entrance” for offline consumption is to be reshaped after the market clearing. Considering urbanization and consumption upgrade in China, such an offline entrance serving as a carrier for citizens’ life experience embodies inestimable value.” JD Capital predicts shopping malls in China to grow at 15-20% in the next three years.
Service providers significantly enhance soft power of real estate enterprises
“As we see it, the dominant factor for surviving in the periodic slowdown of the commercial real estate segment and even achieving growth against the headwind is the soft power of an enterprise, or, its management expertise. The industry of shopping centers in China has long been criticized for, among others, homogenizing competition, uneven capabilities of investment attraction and operation, and lack of operation strategies. All these problems can be traced back to the shortage of soft power,” said MA.
In a real estate market featuring rapid de-stocking, developers should get rid of the “real estate thinking pattern”, and regain the “operation-based development strategy”, emphasizing soft power improvement.
For developers, the pressing issues include how to better position the project to fit in the local consumer market; how to attract brands to their shopping centers, keep those they need and eliminate those unfit for them, and to improve operation and management capabilities; and how to acquire satisfying rental revenue to enhance asset value. Real estate developers thus need to establish a new team specializing in commercial operation, or hire an experienced group. This will imply an enormous market for providers of comprehensive commercial real estate services.
A commercial real estate practitioner points out that except large developers such as Wanda, COFCO, and China Resources that are experienced in long-term commercial project operation, most developers are lacking in a mature operation team. They need third-party consultancy services in the entire project life cycle to minimize the trial-and-error cost, carry out the project, and maximize the assets. In recent years, developers including Wanda and Intime have been expanding their third-party services through asset-light management output on large scale.
JD Capital introduces the model of commercial real estate plus capital operation to help investees develop into bellwethers
As China’s leading equity investment organization, JD Capital is experienced in investing business chains. It has invested in many businesses in multiple market segments and helped investees develop into bellwethers in their sectors, including listed companies such as Wongtee International, Luolai Lifestyle, Lancy, Ideal Jewellery, and Baihe.com, as well as a large number of famous franchise brands such as Juewei Duck Neck, Doctor Glasses, Rongtai, and MGPin Group, to name but a few.
China witnessed a booming M&A market over the past two years. In the first half of 2016, the M&A transaction volume at home and abroad conducted by Chinese companies reached USD 412.5 billion, hitting a record high again. China’s economic growth has slowed down with the A-share market remaining sluggish and the supply-side structural reform ushering in a new era. Under that circumstance, M&A became the new investment theme of JD Capital.
According to MA, JD Capital plans to make use of its resource advantages to engage more deeply in the operation and development of entity economy. It intends to tighten the bond between capital and industries to reorganize industrial and corporate resources, so as to quickly forge a batch of leaders in various sectors.
As head of JD Capital’s commercial real estate team, MA remarked that: “The combination between real estate operation and capital is an irresistible trend. For instance, Simon Property Group, the largest American real estate company is in effect a fund management company. And about half of the revenue of the Blackstone Group, a world famous asset management firm, is contributed by its real estate fund.”
JD Capital had made deployment in the property and commercial real estate management segments:
－Poured RMB 600 million in Wongtee International (stock code: 000056), which is rated as the best investment case in China’s real estate sector in 2016 by ChinaVenture, a Chinese investment rating authority.
－Established partnership with many renowned real estate management players and became shareholders of many of them.
－Made overall investment deployment, with which JD Capital acquired an in-depth understanding about the international trend and local property companies’ demands. In addition, it made use of its expertise as a financial company in the case of investment deployments in the commercial real estate segment. JD Capital not only invests in commercial real estate management but also facilitates financing channels to pursue further cooperation with major insurance companies, listed companies as well as overseas funds and to offer property players comprehensive solutions.
JD Capital’s commercial real estate team is an elite team with most of its members graduating from prestigious universities such as Tsinghua University and Peking University. As for the team leader, MA Zhantian, his colleagues describe him as a workaholic because he always organized a great number of tightly-scheduled field visits and project reviews. They often have to go to multiple cities within a single day. In this year alone, he flew 240,000 km, equivalent to six times of the length of equator.
Supported by the resources of JD Capital, its commercial real estate team quickly attracted many top talents in commercial real estate management both in and out of China and forged a strong and professional team. Some are local experienced talents, and some members have worked as the management staff of many supreme companies such as China’s top five commercial banks, Capitaland, Insite, COFCO and China Resources. This team will make best use of JD Capital’s nationwide network and its resources in various industries to provide shopping malls in JD Capital’s investment system with long-term and comprehensive commercial real estate management services. The commercial real estate team is still expanding and growing stronger.
MA pointed out that, “JD Capital has acquired an understanding about the status quo and opportunities in the commercial real estate sector through its constant research on and investment in this sector as well as its eight years’ investment in other sectors and its capital operation experience since its IPO. JD Capital has thus ridden the trend to carry out profound strategic cooperation with many famous Chinese and foreign property companies, and establish unique competitive edges and wide recognition in this sector. As the M&A era approaches, JD Capital is ready to create feasible and hefty returns for investors while contributing to the supply-side reform.”