Merrill Lynch signals end of Asia real estate platform

Merrill Lynch is to sell the asset management of a real estate portfolio in Asia worth up to $2 billion alongside that of its $2.65 billion Asian Real Estate Opportunity Fund.

As reported in May, the US firm is selling the management of the opportunity fund which launched at the end of 2006, closed to investors last September and is now fully invested.

However, PERE has learned that the bank is also offering buyers the management of all real estate investments made by Merrill Lynch’s global real estate principal investments group that pre-date the opportunity fund and have remained on its balance sheet. The value of these assets combined with those in the fund is thought to be about $5 billion.

One potential purchaser of the opportunity fund described the offer as being a “sweetener” because it provides fee income in addition to that from the opportunity fund.

However, other sources suggest that problematic regulatory issues and the non-core nature of the business to Merrill’s owner Bank of America are also reasons behind the decision to offload all of its Asia real estate investment management business.

If sold, it would effectively spell an end to Merrill Lynch’s real estate principal investment activities in Asia.

The group began investing in the region in the late 1990s, picking up assets in China, India and Korea as well as other parts of the region. Investments that are still owned by the banks are described as being a mixture of both equity and debt positions.

The asset management is currently carried out by a group of 60 real estate professionals based in major cities such as Tokyo, Hong Kong and Beijing.

According to parties familiar with the matter, US and European firms have approached Merrill Lynch to take on the management of the opportunity fund and all the other Asia assets. Those firms include New York-based Apollo Management, which is currently building a global opportunity real estate platform.

Other firms to approach the bank include AREA Property Partners, The Blackstone Group, LaSalle Investment Management, and the real estate investment management division of Dutch bank ING.

One source said the Asia real estate management platform was not considered “a core concern” of Bank of America, which took over Merrill Lynch last year. The source said: “This transaction has been largely driven because of some regulatory hurdles combined with a strategic decision on the part of the firm. On the regulatory front, the active management of real estate for commercial banks is problematic, so it was thought best to not just transfer the fund but actually transfer the whole platform.”