UBS turns to Chinese commercial real estate

UBS AG, Switzerland's biggest bank, is planning to expand its Chinese property investment business with a move into commercial real estate.

Office, retail and industrial properties are "where investor demand is certainly moving to" in China, Trevor Cooke, head of global real estate for Asia-Pacific at UBS Global Asset Management, said.

"The stock of investment grade assets in China is growing at about 35 percent per year."

The bank will work with a developer or a company with an ability to source existing assets, he said.

Several cities in China are expected to experience improving rental demand for commercial space on the back of recent regulatory changes, including policies to boost growth in certain areas, CBRE Group Inc said in its Asia Pacific Office MarketView report. China was among the five most sought-after markets for retailers looking to open stores this year, a separate report by the broker, released in March, showed.

UBS already invests directly in Chinese residential property through a joint venture formed in 2008 with Shenzhen-based developer Gemdale Corp. The bank is planning a second residential fund, with an initial close of about $100 million and a total of at least $350 million, Cooke said.

"It's hard not to acknowledge the macro sentiment around residential property in China right now, or the concerns about a Chinese bubble," Cooke said. "But that just puts the emphasis on the asset management credentials."

China's home sales fell 11 percent in May from a year earlier. The value of homes sold declined to 446.1 billion yuan ($72 billion), according to the difference between National Statistics Bureau data for the first half of the year and the first five months.

UBS plans to offer clients the option of investing in Chinese property using either dollars or yuan, Cooke said.

The bank, which has about $66.4 billion of real estate under management globally, is also expanding in Australia through a joint venture with Melbourne-based developer Grocon Pty and through an agricultural partnership announced last week with closely held agricultural advisory company Bydand Global Agriculture.

UBS Grocon Real Estate is targeting as much as A $750 million of assets under management by the end of this year, including Grocon developments, Cooke said. The joint venture, which plans to have A $10 billion ($9.4 billion) under management in five years, hasn't announced any investments yet.

UBS Grocon gives the bank the first right of refusal on the builder's A $2 billion pipeline, the latest addition to which is the Commonwealth Games village on Queensland state's Gold Coast. Grocon won the right to be preferred developer of that project in December.

UBS will team up with Bydand to help match investor demand with farms that need equity capital.

"The Australian agricultural sector is carrying too much debt, and a significant amount of farmers are subscale and need an exit," Cooke said. "Farmland provides a great portfolio diversifier and, structured right, it damps volatility and initial demand from clients in all parts of the world seems very strong."