PERE article compendium How is the Covid-19 outbreak impacting global real estate? » The city that became the epicenter of the country’s coronavirus outbreak » Covid-19 checklist: Five areas of fund operations to consider » Blackstone warns coronavirus is ‘material’ risk to its funds’ performance » Coronavirus impact spreads to wages » Retail and hotels first sectors hit by spreading coronavirus » How an epidemic revealed a supply gap in Chinese healthcare real estate » China real estate is in ‘wait and see’ mode over Corona Virus » How managers are fundraising for a downturn perenews.com/asiaweek | #PEREAsia How is the Covid-19 outbreak impacting global real estate? Sitting in the middle of the Yangtze River Economic Belt, Wuhan is the largest inland and cargo distribution center in China, with services covering a population of almost 400 million across its five neighboring provinces, according to official literature from the city. The city is also a growing industrial hub featuring collaboration between high-tech and traditional manufacturing industries, host- ing large-scale developments that include the Optical Valley of China, Dongfeng Peugeot Citroen Auto Town, Taiwan Enterprises Devel- opment Zone and Yangluo Development Zone, according the city’s literature. However, rather than for its industrial endeavors, Wuhan has emerged to the international community as the birthplace of a deadly coronavirus. Despite the government’s attempt to quarantine the city on January 23, the outbreak has infected over 120,000 people glob- ally with around 67 percent of confirmed cases in China as of March 11. Links to Wuhan and its surrounding cities in the Hubei province are The city that became expected to be suspended indefinitely until the situation has shown the epicenter of the signs of recovery. Only then will the city’s walls be heard once again. Timeline country’s coronavirus 1992 Selected as one of the open cities along the Yangtze River in 1992 marking the start of foreign investments outbreak coming into the city 1993 Wuhan Economic and Technological Development By Christie Ou - 12 March 2020 Zone incorporated in 1993. The zone is 200 square kilometers and sits within 30-minutes’ drive to the port and railway station If the walls of the city of Wuhan could talk, no one would be around 2000 Wuhan Export Processing Zone established in Wuhan to hear them. In January, the city was placed in a state of near-total Economic and Technology Development Zone. Approved quarantine to contain the outbreak of a dangerous coronavirus. to be the national level automobiles and parts export base This marks the first time the Chinese government has locked down by the government in 2006 an entire city in the battle against an epidemic outbreak. The shutdown 2002 The city was ranked sixth among 25 most promising is expected to have a significant economic impact on Wuhan’s and – to cities in China by UN World Urbanization Prospects report an extent – the entire country’s economy. As a major industrial city and 2004 Named major focus in the ‘Rise of Central China Plan’ transport hub, the closure of Wuhan will do considerable damage to introduced by premier Wen Jiabao to develop advanced the country’s supply chains, according to a report released by research manufacturing division Economist Intelligence Unit (EIU). 2015 The city’s GDP reaches 1.091 trillion yuan ($15.6 Although less well-known internationally than metro areas like billion, €14.2 billion) in 2015, with year-on-year increase Beijing or Shanghai, Wuhan is the capital of the central Hubei province, of 8.8 percent; GDP per capita reaches approximately 104,132 yuan and its largest city, with a population of more than 11 million. And while not in the same league as China’s tier one cities when it comes to prop- 2019 Value of imports and exports reaches 244 billion yuan, accounting for 61.9 percent of Hubei province’s erty investment, Wuhan still recorded real estate investment volumes overall foreign trade value of $1.4 billion since 2015, $900 million and $500 million from domestic and foreign investors respectively, according to real estate research 2020 On January 23, government officials announce temporary closure of Wuhan’s airport and railway stations firm Real Capital Analytics. The data also points out the only foreign to contain the spread of the coronavirus capital has come from Hong Kong and Singapore. perenews.com/asiaweek | #PEREAsia 2 How is the Covid-19 outbreak impacting global real estate? Covid-19 checklist: Five areas of fund operations to consider Lawyers from Paul Weiss pinpoint the areas of a private equity firm operations that may need to be adjusted to account for the coronavirus outbreak, including fund documentation, valuation and banking relationships. By Guest Writer - 13 March 2020 The cascading impacts of the coronavirus outbreak (covid-19) on Alter the fund documents markets and businesses are creating a variety of challenges and opportunities for private funds. General partners may want to ● Offering Period: For ongoing fund offerings, GPs should expect consider a variety of proactive steps, including reviewing invest- delays in the offering process and may want to consider extend- ment objectives; altering fund documents; being more proactive in ing the offering periods of private funds beyond the customary 12 information sharing, valuations and reporting; reviewing borrowing months. GPs may also wish to build in the flexibility for the consent limitations and derivative contracts; and other protective measures. of the advisory board or the GP to extend the offering period. ● Capital Commitment Rollover: GPs may want to consider asking Broaden the investment mandate LPs in existing private funds that are in liquidation or wind down to “reallocate” unfunded commitments into new distressed or The recent market turmoil arising from covid-19 will result in some other non-traditional strategies as a more efficient way of LPs’ GPs considering distressed and other non-traditional investment underwriting “new” commitments. opportunities, including open market purchases of public equi- ● Commitment Period: For ongoing fund offerings, GPs may want ties. For existing private funds, the investment objectives set forth to consider building in commitment period extension mechan- in the fund documents should be reviewed to explore whether or ics (eg, the ability to extend by one or two years with the consent not they provide the flexibility to make these types of investments. of the advisory board). For existing private funds that have the For new private fund offerings, GPs may want to consider broad- ability to extend commitment periods, GPs may want to consider ening the fund’s strategy beyond traditional buyouts to include seeking an extension now to get ahead of opportunities and distressed investing for control, flexibility to invest in the debt of ensure flexibility to draw on unfunded commitments. portfolio companies and possibly open market purchases of public ● Term: For existing private funds nearing the end of their terms, GPs equities. GPs will also need to understand the compliance and regu- may want to consider seeking a term extension to provide addi- latory considerations (including filing requirements) pertaining to tional time to weather a potential long-term financial downturn. any such investments. ● Follow-On Investments: The expected need to provide addi- tional capital to portfolio companies may put pressure on the perenews.com/asiaweek | #PEREAsia 3 How is the Covid-19 outbreak impacting global real estate? follow-on provisions in fund documents (which typically cap the to the valuation provisions in their fund documents to ensure amount of follow-on investments at 15-20 percent of commit- compliance therewith. GPs are also encouraged to consider the ments after the end of the commitment period). GPs may want potential impact on any subsequent closings in process. to consider whether, and to what extent, a follow-on invest- ● Financial Statements: Many fund-level financial statements rely ment is subject to these limitations if the follow-on investment is on the delivery of information from portfolio companies (which being funded without calling additional capital contributions (or will likely be delayed given the current situation). GPs may want to through the use of leverage). If there is no follow-on investment review whether the fund documents have flexibility to go beyond capacity, or if follow-on capacity may be constrained down the the customary 90 or 120 day delivery timeframe or if the offer- road, GPs may want to consider if other means of credit support ing documents have disclosure relating to delayed reporting or are available, such as portfolio company guarantees. force majeure risk. Potential delays beyond 120 days may have ● Recycling: For ongoing private fund offerings, GPs may want to an impact on custody rule compliance as well. consider creating broader flexibility to recycle proceeds without regard to a specific timeframe (typically 12-24 months) or other A time for borrowings than solely during the commitment period. GPs may want to consider the ability to treat special purpose vehicles as portfolio ● Increased Use of Leverage: Falling valuations and distressed or companies for purposes of enhancing recycling flexibility. other non-traditional opportunities may drive increased use of ● LP Meetings: GPs may want to consider providing for alternative leverage by private funds through the use of existing subscription means of holding LP meetings, including by way of webcasts or line facilities (if capacity is available), total return swaps, margin other electronic means. loans or other alternative forms of financing. GPs may want to pay ● Warehousing: GPs may want to consider the inclusion of ware- careful attention to borrowing limitations in fund documents and housing provisions in fund documents to allow it or its affiliates any requirement to reserve unfunded capital commitments for to warehouse investments while private funds are in the offer- purposes of satisfying borrowings and other contingent liabilities.