It is the latest of a series of groups to announce that they are pumping billions of dollars into the Asian markets with China and India the top targets as both countries are experiencing a sharp fall in property prices and sales and developers are looking for foreign partners to complete projects.
Merrill Lynch, which has been struggling with tight credit markets and is now being rescued by Bank of America, said it sees the creation of its Asian Real Estate Opportunity fund as a natural extension of its business.
It has raised the money from investors, including pension funds, endowments, foundations and private individuals, in North America, Europe, the Middle East and Asia. 'We see exceptional opportunities in Asian real estate over the medium and longer term,' said Tim Grady, managing director and head of Merrill Lynch Pacific Rim Global Commercial Real Estate.
The fund will invest across the property sectors as well as in property companies. It will prioritise investments in Japan, China, South Korea and India. It will also buy in Australia and Southeast Asia.
Merrill's fund is among the biggest to be raised for Asian property this year, though slightly smaller than a $3 billion fund announced by LaSalle Investment Management in August and a $3.9 billion fund raised by MGPA, a company partly owned by Macquarie Bank.
As stocks continue to fall some investors are now suffering the 'denominator effect,' in which percentage allocations to non-equity asset classes, including property, tend to rise too high. The result is that some investors are expected to sell real estate, putting more assets on the market.
Property fund managers are eager to invest in Asia now because they believe that developers, especially in China and India, will offer plum deals because they are starved of financing.
Citigroup is raising a multibillion-dollar follow-up to a $1.3 billion Asia fund, which it has been investing mostly in China and India. And JPMorgan Chase plans to invest more than $1 billion in Asian real estate over the next three years.
