U.S. fund managers find bargains arising

U.S. fund managers find bargains arising

SAN FRANCISCO (Dow Jones): In early July, U.S. real-estate company Colony Capital offered to buy a just-finished upscale residential development in the Philippines from its near-bankrupt owners. The offer was for about US$30 million -- but the owners rejected it.

Three weeks later, however, their South Korean bankers told them to sell or be forced into receivership. The upshot: Colony got the property for 10 percent-15 percent less than it originally offered, reports the latest edition of the Far Eastern Economic Review published yesterday.

"It wasn't the first time in Asia when our earlier offer wasn't accepted," says John Brady, a principal of the Los Angeles-based company, which is one of the biggest private real- estate investors in the U.S.

As Colony's experience indicates, stricken Asian companies have often been reluctant to sell out to foreign investors.

But now, more than a year into Asia's economic crisis, companies in the region are finally starting to admit they need outside help. That sea of change promises a wealth of new opportunities for cash-rich investors from the U.S. and elsewhere. With local sources of finance drying up, many Asian companies need money for restructuring -- or just to survive.

The openings for investment are better now than even a few months ago, according to U.S.-based private investors who are poised to reap potentially huge benefits. Asia's cash crunch has forced sellers to accept deals they might recently have rejected.

Combined with a revival of U.S. institutional interest in the region, this has led to a surge of new U.S. funds aimed at Asia.

This is the moment that many investors have been waiting for," says Simon Murray, a long-time Asia hand. In July, Murray raised $150 million for the first offering of his Asia-targeted Gems fund, with U.S.-based GE Capital leading a pool of international investors.

One obvious attraction to private investors now is lower prices. Many would-be investors stayed on the sidelines of Asia's mid-1990s boom because prices relative to earnings were simply too high.

The region's economic crisis, and the slide in prices it has triggered, has now given them their chance.

"Prices are now 50 percent cheaper than they were a year ago and the deals just keep getting better," says Murray, who hopes to double the size of his fund by year's end. Adds Hsu Ta-lin, chairman of Asia operations for Hambrecht & Quist (HQ), a San Francisco-based investment bank: "They need the liquidity and we have the capital. It's a perfect match."

The near-disappearance of local capital has also given outside investors an entree to a whole new set of deals. "Access is the hardest part of finding deals in Asia," says Brady of Colony Capital.

"Now we are seeing that situation improve." Eric Li, a partner in the San Francisco-based venture-capital firm Orchid Asia Holdings, recalls that before the crisis, the best deals went to the region's own, more aggressive financiers.

"Companies in Asia were playing one investor off against another. We couldn't even get a seat at the table." That has all changed now, he says.

A rash of new private-investment funds provides evidence of U.S. money-holders' heightened interest in Asia. They include several "vulture funds," so called for their hungry swoops on the distressed real estate that litters Asia's business landscape.

Among them are an $800 million fund launched recently by Houston-based developer Hines, which intends to invest more than 40 percent in Asia. New York-based Greenwich Group International expects to raise $2 billion-2.5 billion from U.S. investors for Asian property purchases by the end of 1999.

"The response from investors has been overwhelmingly positive," says Hsu of Hambrecht & Quist, which already has $700 million invested in Asia and expects by year-end to establish a new fund for the region worth at least $500 million. "From an investment perspective, the Asian crisis has become a great opportunity."