Arch Capital is a private equity real estate fund manager founded in 2006 and based in Hong Kong. We manage capital which invests across investment styles — opportunistic, value-add and core/core plus. We are Asia focused with operations and investments in Greater China (Mainland, Hong Kong, Macau and Taiwan), in Southeast Asia (Singapore, Thailand and Philippines) and Australia.
What opportunities does Arch Capital look for?
We have been strong in resi and have a track record developing various modes of residential products and having successful joint ventures with local developers, particularly in different parts of Greater China and Thailand. Our Macau JV is by far one of our largest developments with 20 resi towers. With that strength we have also recently moved into co-living.
We have also invested in commercial and mixed use across Greater China, Southeast Asia (SEA) and Australia on both the opportunistic and core side. We have handled commercial new construction, renovation/ repositioning and operations across the markets.
We like to say that our team at Arch Capital are “real estate people, managing money” rather than “finance people, managing real estate” which was the common model around pre-GFC and even with some of the current players. We like to think that we know real estate well, owing from the strong real-estate background by our key people in Arch Capital.
How has Arch Capital been impacted by COVID-19?
Our portfolio is intact and doing fairly well. There has been some impact from the coronavirus such as construction work delays. This is primarily due to government mandated lockdowns in some markets and by border closures which affected movement of labour and construction materials. We are now recovering on those slight delays. Also, as you can imagine, buyer sentiment is down so we have shifted to online sales. The coronavirus has expedited the adoption of online tools and methods. It opened venues to market for our products and for general coordination and communication. It also pays to have low gearing in our investments. This allows the projects to be more resilient.
How about the recovery from the pandemic?
Many of the governments have been supportive of their respective economies spending anywhere from 10% to 20% of their GDP. But not all governments are doing this and not all markets will respond as efficiently as expected. We expect to see some distress in the various markets, so we are very close to the ground looking at these opportunities. We have dry powder and we will be very selective in the upcoming deals. The Covid-19 pandemic is an unfortunate crisis but it is offers once-in-a-lifetime opportunities.
Which assets in SEA are offering the greatest opportunities?
It is expected that there will be stress in negatively hit sectors of hospitality, tourism and travel. Many investors know this but the differentiation among managers will show in what assets will be picked up and what the manager will be able to do with the asset to maximize returns. In SEA markets we are looking at these stressed sectors and will leverage our strength in being able to renovate/reposition or even convert and re-develop.
We are also looking to provide funding to developers who will need capital as liquidity dries up in their local markets due to credit tightening and weakening up of pre-sales. This crunch is more pronounced with second-tier and medium-sized developers in SEA markets like Philippines and Thailand. We are flexible in structuring our investment as “debt” which protects us on the downside while providing ability to enjoy the upside. On the side of our developer/partner they are able to get additional financing on top of any bank borrowings they might already have. Once again fundamentals will guide us in selecting the opportunities to pursue. The assets should be in good locations, products are designed for appropriate end-user markets and the developer/partner has the integrity and ability to deliver.
We are carefully reviewing the impact on the demand and supply dynamics in the office markets in Bangkok, Manila and Singapore. Pre Covid-19, these markets have low single-digit vacancies and healthy rental growths. We are cautiously confident that the macro fundamentals will recover from the Covid-19 shock, especially in markets where there is strong government support.
In terms of asset classes: we have seen co-living do well in Hong Kong where we have a portfolio in operation and are currently looking at expanding into other markets. We have seen most hotels down to 10-20% occupancy during this pandemic, but our co-living projects are keeping a high occupancy rate because we are serving a large un-served market.
I think Asia is still a positive spot for global investors as we have not seen a reversal of investment flow. On the contrary, we are getting more calls from investors asking about the opportunities in Asia arising from the coronavirus pandemic.