Blackstone Still Wants To Complete Chinese Property Deals

MACAU (Reuters) – U.S. private equity giant Blackstone Group said on Wednesday that it still aims to complete a pair of property deals in Shanghai, although a company official said valuations in China need to come down and regulations should be friendlier to foreign investors.

“The challenge is that pricing is inflated generally beyond expectations of international investors, but it is adjusting,” Robert Welanetz, global retail head for Blackstone, told Reuters on the sidelines of a conference.

As China’s economic growth slows, residential developers that invested in retail property will be forced to sell, pushing prices lower, he said during a panel discussion.

“There’s going to be a value/price adjustment in China based solely on the need to recycle capital. In many cases developers are recycling out of retail because it’s not their specialty,” he said.

The South China Morning Post reported this week that Blackstone had dropped a deal worth about $160 million to buy 90 percent of a commercial building from Hong Kong-listed VXL Capital (0727.HK) due to worsening market conditions.

Welanetz disputed that: “It’s still moving forward. It’s not that I hope we’ll do a deal, I know we’re doing a deal.

“I think it will be sooner rather than later.”

Separately, sources previously told Reuters that Blackstone was vying with rivals to buy up to four commercial buildings in Shanghai from Super Ocean Group for up to $1 billion.

The South China Morning Post reported this week that Blackstone had failed to agree on a price for one of the buildings, the new Skymall shopping centre.

“We’re still in dialogue,” Welanetz said, referring to Skymall.

Welanetz said he hopes the Chinese government makes it easier for foreign funds to invest in property.

Previously, overseas investors could hold property projects in offshore vehicles; now they must set up domestic companies that meet capital requirements.

“As exports slow down, foreign capital is going to be important again,” Welanetz said.

A government researcher said in remarks published on Wednesday that growth momentum was slowing sharply even before the financial crisis struck.

China’s annual growth rate slowed to 10.1 percent in the second quarter from 11.9 percent for 2007, with some economists predicting the pace for the third quarter, due next week, to have fallen to about 9 percent.

Welanetz said slowing growth in China would have far-reaching effects and underscore the importance of foreign investment.

“Although we’re all optimists, we’re in challenging times. I think there will be some deferred expenditure on big-ticket items such as housing and big-ticket electronics and furniture,” he said.

“My big concern is the government doesn’t adjust quickly enough to allow foreign capital to help with the next phase of China’s development,” he said.

“But China still tends to be the best sandbox in the world to play in,” he added.

By Dominic Whiting
(Writing by Tony Munroe; Editing by Ken Wills)