Key ZACD executives behind the Asia-Pacific Real Estate Opportunistic Fund Series II (from left): Chen Siew, Mak, Gwee, and Baur
Stanley Yeo founded ZACD a decade ago as an education fund for his two sons. ZACD is the acronym for the boys’ names, Zachary and Darius. The fund started with a modest $165,000; today, it is worth $75 million, says Yeo, who is also co-founder of property consultancy SLP International with his wife, Kain Sim.
Yeo, who prefers short-sleeved shirts and holding meetings in coffee shops, made an exception on Feb 18 for the launch of ZACD’s Asia-Pacific Real Estate Opportunistic (ARO) Fund Series II, held at the five-star Ritz- Carlton Hotel. Immaculate in a grey designer suit and with well-coiffured hair, he took a front-row seat among the audience, instead of helming the press conference. “I’m media-shy,” he confessed.
Yet, it is clear he is in the driver’s seat of the Singapore-headquartered ZACD Group, with a staff of 200 including those at SLP, now its subsidiary. ZACD has evolved from an investment fund for his children into a property investment club with several high-net-worth Indonesian clients, and is now a full-fledged private equity firm with an investment management licence.
Since its inception in 2005, ZACD has undertaken equity stakes in various projects as joint developer and consultant. “I was involved in a lot of deals,” says Yeo, which amounted to a total of 32 projects over a decade, 13 of them residential and 19 industrial, with a gross development value of $8 billion. Four of the residential projects were in the prime districts of 9, 10 and 11. “They were mainly in the Balmoral area,” he says. “That was in 2005. It was a good time to enter the high end segment.”
Re-entering the high-end residential segment
Two years ago, Yeo sensed that it was once again “a good time” to re- enter the high-end residential segment. He has been hunting for potential investments, particularly in districts nine and 10 since then. In the course of his search, he has been approached by many developers looking to offload their unsold units in high-end condo projects. “A lot of them are my friends, but I told them the price must be right,” he says.
The high-end residential segment is, therefore, one of the sectors the ARO Fund Series II will be zooming in on. According to Nicholas Mak, ZACD’s head of research and consultancy as well as chief investment officer, prices in the Core Central Region fell 2.5% in 2015, and 8.7% since the imposition of the total debt servicing ratio loan framework in 2013. Prices today are at 2011 levels, he says.
The focus in the high-end residential segment will therefore be on bulk purchase at bulk discounts. “We’re going for deep discounts in equity partner and group managing director of ZACD since 2015. Gwee was formerly CEO of Asia Capital Pioneers Group, and prior to that, head of private banking at Standard Chartered Bank (China).
ZACD’s ARO Fund Series II will also be looking at the industrial segment, specifically data centres. “We have experience in buying industrial properties, retrofitting them, and then selling or renting them out,” says Mak.
The third asset class targeted by the fund is student accommodation in Australia, where there is a shortage. As the Australian dollar has weakened substantially against the Singapore dollar, the expectation is that it could appreciate over the next three years.
“The fund is not restricted to these three types of assets,” adds Mak. “We are also open to exploring other assets in Asia-Pacific that can deliver superior returns to our investors.”
Pipeline of assets
ARO Fund Series II is looking to raise $300 million in equity to acquire assets, and has secured about half the amount. The fund life is for three years, with an option to extend for another two. It is targeting to achieve a 15% internal rate of return (IRR) and has a minimum dividend payout of 3.5% per annum. Assets that are being held for rental income will go towards paying those dividends, Mak says.
“There’s an established pipeline of assets that are being evaluated today,” says Darin Baur, ZACD managing director of financial services. “The plan of the fund is to deploy capital quickly and we expect the investments to be made within an 18-to-24-month period, and to be monetised within three to five years.”
The investments targeted will be “off-market bespoke transactions”, Baur adds. “We’re trying to stay away from public tenders and auctions.”
ARO Fund Series I started in 2011 and com prises three properties — a private condo, an executive condo and an industrial property. The size of the fund was $125 million. The fund was focused on the mass-market segment when it was launched as that was the first housing segment to recover following the global financial crisis.
“The right strategy then was to buy land, develop and sell, as land prices were lower than they are today,” says Mak.
The others
Other groups that have announced starting fund management arms include IT distributor SiS International, whose new asset management arm launched its $50 million SiS Real Estate Opportunity Fund which will focus on distressed assets in Singapore, Hong Kong and Tokyo.
On Feb 15, listed property developer Wing Tai Holdings announced that it has formed a new fund management unit called WT Fund Management, headed by Chua Choy Soon, previously with SEB Investment GmbH and GIC Real Estate. “We have been monitoring the market and are considering several options,” he says in a press statement.
“It’s very comforting that there are other opportunistic funds being launched at this time,” notes ZACD’s Gwee. “The good thing is that they are in the $20 million to $50 million bracket, and are mainly looking at end products.” Given ARO II’s fund size, Gwee reckons it will be able to make larger scale acquisitions.
Taking stakes ZACD will also take a 10% equity stake in ARO Fund Series II. “If you look at other funds, they use other people’s money, [whereas] we put in a 10% to 30% stake of our own money,” Yeo says.
In the past, ZACD had taken stakes in development projects with construction companies-turned-developers and also assumed the role of consultant and marketing agent through SLP. Developers ZACD has worked with include Qingjian Realty, Wee Hur Holdings and Capital Development.
For instance, ZACD took a 25% stake in Parc Centros, a 618-private condo in Punggol in a JV with Wee Hur. The project is scheduled to be completed sometime this year. ZACD also had a 19% stake in the 504-unit RiverParc Residence, an execu tive condo at Punggol Drive by Qingjian which was completed in September 2014.
At the 590-unit Riversound Residences in Sengkang, also developed by Qingjian, ZACD holds an 18% stake. At Flo Residences, a joint development with Capital Development, ZACD’s stake is 30%. The 530-unit private condo in Punggol will be completed sometime this year. “ZACD has invested in more than 10 projects in Punggol alone,” says Yeo.
“All these investments attracted a lot of attention, so I applied for a fund management licence,” he adds.
ARO Fund Series I was aimed at high-net-worth individuals with investments ranging from $300,000 to $6 million. ARO Fund Series II will also target accredited investors with a minimum investment of $200,000.
“ARO Fund Series I matured last year and had returns averaging 26% per annum,” says Gwee. “These are slowly coming back into our pockets. Obviously, we want to return the investment to our clients [who may] want to reinvest with us after [our] stellar performance of the last five years.”
This article appeared in the City & Country of Issue 717 (Feb 29, 2016) of The Edge Singapore.