$1.2bn fund to target shopping centres in tier-two Chinese cities

Pradera Asset Management is poised to complete the initial fundraising for its $1.2bn (£604m) China retail fund.

The fund manager, headed by entrepreneur Paul Whight, is in the final stages of raising $600m (£302m) of equity at the first closing this month. The money, to be geared at no more than 50%s in line with Chinese government restrictions, will be mainly used to buy three shopping centre developments across China’s tier-two cities.

The centres are being developed by an unnamed firm and are valued at $1bn (£503m). The deals for the centres, which total 4.7m sq ft of retail, are expected to reflect a yield of just under 9%.

Pradera launched the closed-ended fund in February. It has raised the equity from US, European and Middle Eastern investors. David Fletcher, who starts as managing director for Pradera Asia today, said the company was seeking tie-ups with further local development partners to purchase properties for its fund, which targets annual returns of at least 18% for its investors, before international developers begin rival centres.

It aims to raise a further $500m (£252m) of equity before the end of 2008, which will take the fund to $2.2bn (£1.1bn), and a third $400m (£201m) equity raising at a later date to bring it to $3bn (£1.15bn) of properties under management.

Fletcher said: ‘We see western developers building western-style centres here very quickly, ensuring China makes a leap from first-generation to third-generation developments very quickly.’

Fletcher declined to identify the sites of the fund’s first purchases until the transactions were complete, but the first of Pradera’s centres will be a 1.4m sq ft, 300 store centre in a ‘north-east’ city, believed to be Shenyang. It has planning consent and development is expected to begin next week.

The other two centres, of 1.8m sq ft and 1.5m sq ft, close to Shanghai, are expected to gain consent this summer.

Last month, Pradera set up an office in Hong Kong from where the fund will be serviced. He said Pradera is considering launching both pan-Asian and country-specific retail funds and is examining Thailand, Cambodia and Vietnam as potential markets.