Carlyle Group recently raised nearly $100 million for a new Asian real estate fund -- its first dedicated pool of capital for Asian properties -- that will bring Carlyle's brand of real estate investing across the Pacific in a major way.
Carlyle has extensive investments in Asia, but until now they have been mostly in venture capital and corporate buyouts. It has just four properties in Asia: commercial properties in Korea or Japan that are not part of a dedicated fund. But with the recently formed Carlyle Asia Real Estate Partners LP, an expansion of Carlyle's interest in Asian properties is in the offing.
According to a Securities and Exchange Commission filing, Carlyle Asia Real Estate was formed in November and recently raised $98.5 million, of a planned $250 million, by selling partnership interests to 19 investors.
District-based Carlyle is an investment manager, pooling large sums of cash from wealthy and institutional investors. What it does with the money, mostly, is corporate buyouts -- Carlyle recently finished raising the biggest U.S. buyout fund ever, a $7.85 billion giant -- but it also has invested billions in real estate. About 7 percent of Carlyle's more than $25 billion of assets under management is invested in real estate. So far, most of Carlyle's real estate investing has focused on the United States (three funds so far, with another in development) and Europe (one fund, with another on the way).
Carlyle's real estate efforts are directed by Daniel A. D'Aniello, one of its three founders. D'Aniello sat down last week at his Pennsylvania Avenue office for a discussion about his real estate investing strategy. It was less an interview than a tutorial: In 3o minutes, D'Aniello put a listener through the paces, firing off investment theses covering different classes of real estate on three continents.
For all of its far-flung ventures, Carlyle is a big investor in the Washington region. In 2004 alone, it bought six major condominium developments or conversions here. Condos are one of D'Aniello's favorite U.S. investments at the moment.
D'Aniello's thinking boils down to this: Buy properties that, with the right mix of financing and equity, can be developed, re-developed or re-positioned and sold at a profit in less than five years. Carlyle is not a long-term investor in real estate. "The property has to have a story," he said. "It has to provide a clear way to improve and stabilize the asset."
Once improved, Carlyle sells the property to long-term investors -- pension funds, insurance companies and the like -- eager for the annuity-like returns that stable, leased-up properties provide.
"What differs geographically is the nature of the asset," D'Aniello said. "What doesn't differ is that we have to be able to invest where the cost of capital is cheap and the demand for the asset is growing."
The strategy fits well with real estate markets in Japan, Korea and mainland China, the three markets where Carlyle will focus its Asia realty investing. Borrowing for real estate, especially in Japan, is cheap, and all three markets are churning so rapidly that a savvy investor could identify plenty of opportunities for short-term upside. That's the theory, anyway. Carlyle's funds in the United States and Europe have done well, with total returns so far between 20 and 35 percent. D'Aniello's challenge will be to show that the formula can work in Asia as well.