CADIM: Chine et Inde Real Estate Deals

CADIM: China and India Real Estate Deals

Caisse De Depot is the 11th largest sovereign wealth fund in the world with $245 billion assets under management, Cadim is one of Caisse divisions with high focus on the real estate investments opportunities. According to the case, Cadim is evaluating the financial soundness of three real estate investment opportunities in the emerging markets.

The 3 deals will be evaluated according to their effect on Cadim’s overall portfolio assets allocation by asset class and by geography and their overall risk perspective including country risk, partner risk and the financial risk translated in terms of NPV, IRR and Risk/Reward ratio.

Portfolio Analysis:

Cadim’s portfolio is diversified across 7 main assets classes with high concentration in Funds, Hotels and Stocks. The Atlantis deal consists of participating in developing 2 hotels and Foereau deal consist of developing a hotel as well. Meanwhile the three deals, are considered emerging market investments which constitute less than 10% while Cadim wants to allocate 20% of the investments in the emerging markets. Cadim’s has a room of additional 10% investments in emerging markets which translates to $800 million if additional investments. Meanwhile, Atlantis and Foereau deals propose investments in India’s City of Pune which exposes the portfolio to city risk of $40 million of investment in case the 2 projects were to be accepted. However, the overall portfolio will not be conflicting with investment guidelines that states that no more than 25% of Cadim’s total holdings should be invested in a single city.

Country Analysis:

India and China are both in the higher end of the GDP growth rates. India has 9.2% GDP growth per annum with high potential of expansions around different economic sectors specifically, pharmaceuticals, IT, and real Estate. Chinese economy has proved high GDP growth over the last 2 decades with very established infrastructure development plan. Chinese GDP growth rate is 10.7%. Chinese potential in real estate might not be lucrative compared to Indian market due to two main reasons. Indian population growth is almost double the Chinese population growth rates which indicate a stronger real estate demand in the future for the Indian markets compared to the Chinese markets. The Chinese real estate markets has witnessed high level of supply over the last years which caused what is known as “ghost cities” which are mega-development projects that took place around industrial cities such as Beijing, Shanghai, and Guangzhou. These projects didn’t have enough sales levels leaving the project high phenomenal vacancy rate.

Partner Risk:

The three partners scored differently in the assessment test that Cadim runs for its partner but it is obvious that Atlantis has scored the highest. Atlantis as a partner has established business activities with Caisse with formalized activities in North America and very transparent policy toward its partners. The company is the 26th largest hotel developer in the USA and portfolio of $1.8 billion worth of investment.

Foereau on the other has a very strong and innovative portfolio in India. However, the company has very strong ties with the government. The Indian government has funded the company projects before.

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