A Hong Kong-based property developer focused on Mongolia has merged with a UK-based sales and research firm with the aim of creating one of the world’s leading emerging market real estate companies. The merger between Asia Pacific Investment Partners and Property Frontiers was finalized earlier this year.

APIP is a 15-year-old firm that is the largest integrated real estate company in Mongolia, with interests in Myanmar, Kazakhstan, Cuba and China. Property Frontiers, a research-led advisory and international sales network based in England, has operated in the emerging markets property space since 2004. It has helped over 2,500 clients to purchase real estate in over 30 international markets as diverse as Argentina, Poland, Belize, the Middle East, Malaysia, Brazil, China, Uganda and Mongolia.

Ray Withers, who will remain CEO of Property Frontiers, said he was delighted to be able to move into the development side of real estate through the merger.

Lee Cashell, CEO of APIP, told RE Talk Asia that the merger creates a combined global database of more than 220,000 international property investors. The firm will have operational offices worldwide including Hong Kong, Singapore, Ulaanbaatar, North America, London and Oxford. They currently have 210 staff, and plan to expand to 240 by the end of this year.

The two firms have worked together for a number of years, beginning in 2007 when Property Frontiers sold one of APIP’s buildings. “They successfully sold one of my buildings for me; the building had 104 units and they sold something like 60 units. Then they sold another small building that I did, and they sold 90 percent of the building in around 16 days,” said Cashell. “I’ve always been very impressed with these guys.”

Cashell said he wasn’t looking to merge his firm with another, but had heard that merger talks between Property Frontiers and another developer had broken down. “We were thinking about building up our sales team ourselves in London, Hong Kong and Singapore. It was really an opportunity; it wasn’t something I was looking for,” he said.

Cashell said the opportunity to merge came at the right time for APIP. “I don’t want to say we’ve outgrown Mongolia, but we certainly have capacity to do projects in other countries,” he said. “That can take three forms; we can help developers sell their flats; we can underwrite, and turn around and start selling which puts our skin in the game; and lastly we can do co-developments where we buy the land with a partner and we do all of the design, construction management, the sales, marketing and then the property management afterwards.”

Property Frontiers currently have a lot of projects on the go that they’re selling for other developers, but they also bring land with them in some very interesting locations such as Montenegro and Granada in the Caribbean. “The combination of us and them is also very interesting to the people that they work with because we could potentially do some developments in places where they have only been just a broker in the past,” says Cashell. “We’re going to be busy.”

MYANMAR

In Myanmar, Cashell said they’re in discussion with a large conglomerate that has 8 or 9 pieces of land that need to be developed. “We’ve submitted a tender for that which would involve bringing in all of the master planners, conceptual architects, interior designers, and a construction company and project managing the whole thing to sell internationally but also selling domestically, which would mean getting a real estate license and incorporating a company in Myanmar, and that’s exactly what we’re planning to do,” said Cashell.

APIP also write research on Myanmar, where the main foreign investors are primarily coming out of Singapore and Thailand. “It’s really a lot of the Thai Chinese,” explains Cashell. “The two countries share a massive border and on one side of the mountain, there are tin and gold mines, and on the Myanmar side, there’s not so many, so investment conglomerates that have been successful in Thailand over the last 30, 40 years have a very good idea of how Myanmar is going to develop because at the end of the day, it’s the same landmass. They have same kind of natural resources, they have the tourism opportunities, the oil and gas opportunities, tin and gold opportunities and they also have a very large workforce and are very capable in the area of agriculture. A lot of the Thais and Singaporeans know how Myanmar is going to develop and those are the main investors.”

KAZAKHSTAN

Kazakhstan’s property market is really a derivative of the oil price, and Kazakhstan is still developing a lot of those oil assets. “Because the oil price went down so much, Kazakhstan’s real estate market is in distress at the moment,” says Cashell. “It’s probably oversold and there are some really good opportunities from a distress point of view because ultimately the oil price is going to come back up, and Kazakhstan is going to be a beneficiary of that because they have a lot of oil.” Cashell says APIP don’t mind entering the country on a partnership basis. “We might be a kind of passive investor there, maybe going in and finishing a building that’s almost finished, helping sell it,” he said.

CUBA

Now that the U.S. has lifted its trade embargo against Cuba, Cashell thinks there will be a flurry of developers trying to get into the country which has already seen foreign investment from Spain, Italy and France. The biggest construction company in the country is the French firm Bouygues. “There’s not really any private ownership of real estate in Cuba as yet, so the way in which foreign companies can come in and participate is through tourism properties, hotel development,” says Cashell. “That’s the one sector they don’t mind investment and joint venture partnerships in.”

APIP is currently evaluating one opportunity in Cuba that would be a $25 million investment, a joint venture with the government. “It’s a very prominent hotel that has a huge amount of potential so we are looking at that right now to see if it’s the right size and right risk profile for us to take a look at,” said Cashell.

MONGOLIA

“When I look at all of these emerging markets around the world, and I look at Mongolia, I still say Mongolia is the best opportunity anywhere,” said Cashell. “We’re the largest real estate agency there now [operating as Mongolian Properties] and the prices have gone down a lot over the past two years because the economy has done very poorly, and foreign direct investment has dried up, but right now, Rio Tinto just raised $4.2 billion US dollars and are now awarding tenders left and right, and because they’re awarding those tenders, my real estate agency—which is the largest real estate agency—is busier than it has been in two and a half years. We’re renting places left and right. One of my main buildings is now almost completely back up to full occupancy.”

Cashell says this is only going to continue. “Maybe the first 50 or 60 expats have come in for this phase two of Oyu Tolgoi, but now we have probably another 950 coming into the country in a short period of time to get ramped up on this project, and there’s not enough apartments,” says Cashell. “It firmly puts our rental yields in around the 12 percent range. When you get such a large amount of money coming into such a small country of only 3 million people, the wages increase a lot. It’s during those times when Mongolia grows 8 percent or more that we are able to sell a lot of apartments to the domestic market. In the entire 15 years we’ve been there, there still haven’t been any mortgages at all so we’re looking forward to the day when people can buy with mortgages. The next five years for us in Mongolia just looks incredible.”

Cashell said there would be a huge demand for a 12 percent mortgage offering in Mongolia, where mortgages are not currently available except for very low-cost housing. He believes the nation's banks will go through a period of being recapitalized in the next 12 to 24 months and that when the economic outlook improves dramatically, they’ll be able to tap the international bond markets. “There will either be one or two banks that get taken over by a larger bank from overseas, or actually does a listing on the stock exchange, and at that point in time, they have access to a lot more funds,” he said. “In Mongolia, when you can lend money at 25 percent, you don’t necessarily want to give anybody a mortgage at 8 percent, it’s a bad use of your money. I’d say we’re probably one year to 18 months away from mortgages being able to hit the market.”

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