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Go-High Fund Chairman Su Xin (EMBA 2003): Rosy Outlook for Commercial Property Investors

Volume 2, 2013

By Kelly Chen & Shawn Shen

Three years ago, Su Xin (EMBA 2003) established the Go-High Fund, the first private equity fund in China to specialize in commercial property investment. Together with other established private and institutional investors, Go-High has invested in six high-profile commercial property projects in Beijing and Shanghai. It now manages RMB 6 billion of assets, an impressive performance for a company just in its fourth year. With analysts projecting higher returns for the commercial property market in 2013, the future looks bright for Go-High.

Su Xin’s focus on commercial property investment came about through a combination of hard work, entrepreneurship and fate. After graduating from Tongji University in 1991, he joined the Architecture Design Institute in the Ministry of Construction (the predecessor of the China Architecture Design & Research Group). Just before turning 30 in 1998, Su made a bold decision. He resigned his position, moved alone to Beijing, and joined a small start-up company, Hongshi Real Estate, which later became China’s largest prime office space developer – SOHO China. During his 11 years with SOHO China, he worked his way up to become the company’s youngest vice president and board director.

Su Xin decided again to do something bold when he turned 40 – he resigned from SOHO China to start his own business, Go-High Fund. The first real estate investment fund in China to focus on commercial properties, Go-High is now also the market leader.

In 2010, the Chinese government began to implement a series of measures aimed at cooling rapidly rising residential real estate prices. This prompted investors to begin decreasing their holdings in residential properties. During that period, the real estate sector also began looking to securitized investment vehicles from equity funds and trusts to provide financing. Go-High’s astute market observations and forecasting, along with its exceptional management team, helped it get an early grasp on the market trends and it made commercial real estate investment its focus. During its three years of operation it invested RMB 5 billion in six projects.

  CEO Talk: Go-High Fund Chairman Su Xin (EMBA 2003)

In 2010, Go-High bought the commercial portion of the C-KING Towers in what was the largest commercial property acquisition in Beijing that year.

In November 2012 Go-High was named among the Top 10 RMB-denominated private equity real estate funds by CBN Magazine in their ‘China Real Estate Finance’ issue. At the beginning of 2013, the government introduced five more polices aimed at cooling down residential real estate prices. This has made Su Xin even more confident of his decision to focus his fund on commercial real estate investments. Though commercial property investment is still in its infancy in China, Su Xin believes that in the future there will be a rapid rise in demand for properties in this segment. He is determined that Go-High Fund will lead the industry, while building its team and reputation, so that it is well positioned to seize this golden opportunity.

TheLINK: Was it a difficult decision for you to start all over again at the age 40?

Su Xin: It was a decision I made with my heart. On my 40th birthday, I went to Qinghai for a holiday. Even today I still remember the endless green grassland, the stars in the sky at night. It was there that I decided I needed a change, and that I should do something that I really love. Maybe it is because at 40, we begin to see the end of our lives approaching and so begin thinking about pursuing the true meaning of life.

Not long afterwards I spoke to the Chairman of SOHO China, Pan Shiyi, about resigning. He was shocked and asked if I was unsatisfied with my position or my salary. I told him it was neither: I was on the board of directors, I was also Chief Operating Officer in charge of the company’s core businesses and money was not the problem. All I was looking for was the chance to become an entrepreneur. In the 1980s, Pan had quit his government job to embark on a career in real estate; I had that same urge too. Eventually, he understood my choice.

TheLINK: Why did Go-High Fund choose commercial property as its focus?

Su: In fact, at the very beginning we didn’t know which market segment to invest in; our first goal was to survive. During our hunt for prospective projects, we heard that CaptialLand was selling the commercial portion of its Kaide Huaxi buildings. It seemed odd to me that the price of these commercial properties was lower than that of their residential apartments. I thought the residential apartments were overvalued and the commercial property was highly undervalued. So we bought the entire commercial portion of Kaide Huaxi and it became our first project.

Then we did a rational analysis of the market, which was quite revealing. First, there was a lot of media coverage about the skyrocketing prices of residential property, and most analysts thought that segment was overheated. Second, according to our own survey, from January 1, 2008 to June 30, 2009, 79% of pre-sale permits for office buildings in Beijing had been changed to residential property projects. This made us realize there was a possibility that commercial property would soon be in short supply. For these reasons, we concluded that there was a very promising future for commercial real estate investment. By the end of 2009, we decided we would focus on commercial property.

We made a random choice [with our Kaide Huaxi investment], but we were able to identify our core competitiveness through that project. Upon closer analysis, we finally arrived at our own business model. It’s totally unlike what they tell you in the textbooks, which is: first, find a direction; then decide what resources are needed. Reality isn’t as perfect as a textbook.

Go-High Fund has stuck to this initial strategy. Not only are we the first commercial property fund in China, we are also the only one solely focused on commercial property investment.

CEO Talk: Go-High Fund Chairman Su Xin (EMBA 2003)

Go-High Central in Beijing, bought by Go-High Fund in 2011.

TheLINK: 2010 saw the launch of several real estate funds in China. Where does the demand come from and what do you think the long-term prospects are for these types of funds?

Su: Before 2010, real estate developers mainly relied on indirect financing, usually in the form of bank loans. However, this heavy dependence on loans is unhealthy for the industry. Banks must protect the interests of ordinary depositors, therefore their investments focus on mitigating risk. When there is a shift in the economy, the contraction of bank loans will hit the entire industry very hard. In foreign countries, direct financing is the source of more than half of the funding for the real estate sector. When there is a downturn, mature direct investors will be diversified enough that they will not need to recklessly withdraw their investments. They can become the “stabilizer” for the industry and also help lower project costs. This can help create long-term sustainable development for the sector. I think there will be a gradual shift from debt financing to direct financing in China’s real estate sector, in the form of securitized products from equity funds and trust funds.

TheLINK: How large is China’s commercial property segment, compared to the rest of the real estate sector?

Su: It’s less than 10% of China’s real estate sector. However the percentage is growing fast; the first- and second-tier cities are beginning to see some growth as well. The government recently introduced a series of policies to stimulate consumption and expand domestic spending. All these activities need places to occur: shops, office buildings, etc.…This is bound to spark development of commercial property. For instance, in the past two years, office rents in Beijing and Shanghai have soared due to greater domestic demand.

Commercial property is a capital-intensive field, and the terms on bank loans are often not long enough. This makes it more urgent for commercial property developers to move into direct financing. This is where our opportunity is.

CEO Talk: Go-High Fund Chairman Su Xin (EMBA 2003)

JA Go-High Building, located along West Nanjing Road in Shanghai's Jing'an district,
was bought by Go-High fund in October 2012. 

TheLINK: What are some of the projects that Go-High Fund worked on in 2012?

Su: When we began the fund, we dealt mainly with individual investors and we communicated with them about business models and prospective gains by introducing concrete project-based funds. We bought potentially advantageous assets at a low price, and made some structural reforms that gave us a certain amount of added value. This was a fast-in, fast-out “buy and sell” model easily understood by our clients. Using that model, we completed two projects: Kaide Mall and Zhongsha Plaza. After establishing a considerable level of trust with our investors, we began to use non-project-based funds to attract investments, and we were able to use the monies on several subsequent projects.

Go-High Fund achieved a milestone in 2012: We negotiated with several large institutional investors to enter into deals for long-term cooperation. This required a lot of time and energy – almost half a year. To convince them of our brand value we had to share our ideas, market predictions and successful experiences. Institutional investors all have one thing in common: They want to know how much a project will contribute to social well-being, not just how profitable it will be. Therefore, we decided to do something unique by leveraging the office building business.

The central business districts in most first-tier cities are full of office buildings, but the reality is that many of them are too old to attract decent companies. Renovating these older buildings with the help of local capital improves urban areas and attracts leading companies. The potential benefit of increasing tax income is a welcome prospect for any local government.

After a lot of hard work, Go-High Fund finally persuaded institutional investors to co-fund a fund management company that specializes in office properties. Together we invested a total of RMB 790 million to acquire our first major project last October: the China Enterprise Tower, which is at a prime location on Nanjing West Road in downtown Shanghai.

TheLINK: What are your plans for this year? Have you finalised any new investments?

Su: We expect to cooperate with more institutional investors. We have proposed a new idea that is unheard of abroad – a ‘quasi-ownership fund’. We are looking to identify some high-quality commercial units in prime locations that we think will guarantee a healthy cash flow. On behalf of this new fund, we will then assume ownership of them on a long-term basis. Participation in the fund will require a relatively lengthy investment term (typically more than five years), and we may also choose, after some analysis, a favourable point at which to sell the properties. We will focus on this ‘quasi-ownership fund’ model over the next few years.

In addition to the first-tier cities such as Beijing and Shanghai, the “1.5 tier” cities will attract much of our future investment. For example, our ventures in Shenyang and Suzhou have gone beyond equity share investment into other models, such as obligatory right investment and asset management.

CEO Talk: Go-High Fund Chairman Su Xin (EMBA 2003)

Go-High Fund's first project was the commercial portion of Kaide Huaxi buildings, located in Beijing's chaoyang district.

TheLINK: What do you think is the long-term outlook for real estate investment funds?

Su: There are many potential opportunities for funds invested in commercial real estate. These may be in the form of simple ‘buy and sell’ funds, or long-term ‘quasi-ownership’ funds; and they may be in market segments such as shopping malls, conglomerates, hotels, office buildings and senior citizen homes.

Despite their brilliant prospects, real estate investment funds in China, especially those denominated in RMB, have a long way to go before they reach the level of sophistication seen in those in western countries. Our field right now in China is roughly in the same place, in terms of development, that IT and online shopping were at ten years ago. Based on the pace at which those sectors developed, once we get past a critical point we may see exponential growth due to rapid market expansion. We certainly have faith in this.

Investment funds must strive for two core strengths: trustworthiness and teamwork. Our goal is to create unique business models, develop our competitiveness, build up our team, and ensure that we stay at the head of the pack; in short, we must be ready for the arrival of the critical development point.

TheLINK: How has Go-High Fund managed to stay ahead of its competitors?

Su: The business of real estate investment funds has actually brought us more opportunity than competition. The so-called “challenge” comes from us, not from others. The market right now is actually big enough for all the players; if you deliver a good performance by doing a good job, developing your brand, building up your team, and honing your core strengths, the competition from other players only serves to drive you ahead.

TheLINK: What did you learn from studying at CEIBS?

Su: As most people would guess, the greatest benefits I got from CEIBS would be knowledge and an excellent network. However, an unseen benefit from CEIBS is a significantly improved way of thinking. The point of a social network lies not in getting something done with the help of an acquaintance but in inspiring yourself with the reference of his thoughts and experiences.

CEIBS provided us with an eclectic environment. In addition to the systematic learning process, the diversified and lively exchanges made me more confident and inspired me to think that I might have more choices than I first realized. That was the most important thing I learned from CEIBS.


CEO Talk: Go-High Fund Chairman Su Xin (EMBA 2003)

Go-High Fund works systematically and strategically on every project.

TheLINK: Can you share with us some of your thoughts about entrepreneurship?

Su: Back when I was in SOHO China, Chairman Pan recommended a book to me – The Tao of Business. I liked it so much that I couldn’t put it down. Contrary to the common belief that the pursuit of Tao comes from a hermetic life, the book tells you that if you want to understand Tao, you must become involved in the mundane world – with basic business practices. For example, the quality of honesty is easy to understand but hard to internalize in your character; only in extreme circumstances can a man’s potential be truly stimulated.

Starting your own business brings about a different kind of experiences and spiritual awakening than you get by working as an employee for someone else. An executive, however high his level is in the corporate hierarchy, faces a different set of pressures and challenges than the owner of a private enterprise.

TheLINK: As Chairman of the CEIBS Real Estate and Construction Industry Alumni Association, you have played an active role in the CEIBS community. What have you learned from this?

Su: The clashes of divergent opinions help give me an objective and well-rounded perspective. For example, if the government puts forward new real estate-related policy, some people in the Association may believe that it will lead to a boom, while others argue that it will lead to a downturn. In some ways, the two sides are equally reasonable and logical. I just need to understand why they think differently. This helps me improve my way of thinking and pushes me to have a “big picture” view of things without any personal biases.