Luxury property developer K.E. Group and a former major shareholder of Raimon Land have set up a private equity fund with an initial investment of 2 billion baht to co-invest in existing property projects whose developers are in need of liquidity or who want to cash out.
Adrian Lee, one of the three managing partners of ALLY KEX Private Equity Trust, said the trust, which is backed by K.E. Group's owner Kaveepan Eiamsakulrat, is Thailand's first private equity trust focusing purely on real estate.
"While the property market is recovering from Covid-19, there remain developers getting a financial impact. Some need funding to complete development of their ongoing projects," he said.
Some developers need to cash out to diversify from sluggish markets, such as condo, to other segments which are more attractive like low-rise houses, said Mr Lee, a former chief executive and major shareholder of developer Raimon Land Plc.
"I met Mr Kaveepan early last year. We set up the trust as we saw an opportunity to give a last mile project financing to property projects which have potential and are in a good location but their developers may have a liquidity trap," he said.
Registered in July this year, the trust will invest up to 2 billion baht for 4-10 projects by June 2023.
Minimum initial rate of return (IRR) will be 18% and the exit period will be within three years.
"We are interested in residential projects as they are easier to exit than commercial projects like hotels," said Panon Leelamanit, a managing partner of the trust. "Those projects must complete construction or deliver units to customers in three years."
In addition to an exit within three years and a minimum IRR of 18%, other factors the trust will consider will be the profile of the developers, which should have experience in delivering projects worth at least 1.5 billion baht.
Products they developed in the past should not have any legal issues, while the locations the trust is interested in are only in Bangkok, said Mr Panon, a former head of business development at Raimon Land.
"Many mid-sized developers struggled to seek financing as financial sources will normally consider their profile which sometimes is difficult to audit. But we will mainly evaluate their project itself," he said.
Mr Panon said a liquidity trap was also a problem for low-rise housing developers as some cases had a mismatch issue. For example, phase one of their project had a lower sales rate than phase two. But in a project loan contract, phase one must achieve a certain sales rate to get the next round of funding from banks.
Managing partner Thunyatorn Nattatum said there were many projects under discussion, of which more than half were hotels, 30% were condo and 20% were low-rise housing projects.
"The trust has three families invested in it at the moment but we are in talks with at least 10 families," said Mr Thunyatorn, former head of corporate finance at Raimon Land.
With MFC Asset Management as a trustee, the trust has an investment committee comprising Mr Kaveepan and Nont Buranasiri, former managing director of KBank Private Banking and Suphin Mechuchep, chairperson of property consultant JLL.
