HK Property Investor Goodwin Gaw Spies World Of Bargains On The Horizon

This story is part of Forbes’ coverage of Hong Kong’s Richest 2021. See the full list here.

As Covid-19 cases began to mount worldwide early last year, Goodwin Gaw, founder and chairman of Hong Kong-based private equity firm Gaw Capital Partners, waited for the sharp drop in property prices that would signal the time to buy. It was a strategy that paid off during the SARS epidemic, when Gaw and his partners spent more than $500 million snapping up real estate as prices plunged, then recovered within a year.

But the Covid-19 pandemic hasn’t followed the same playbook. Instead, its impact has varied widely from market to market, with prices in Asia holding up deceptively well and large deals scarce. “When there are no sellers in the market, there is no price correction to speak of,” says Gaw, who manages the firm’s $27 billion portfolio, which includes hotels, offices, malls and residential developments.

The setback to Gaw Capital’s hospitality assets, which represent roughly 15% of that portfolio, was painfully clear as travel bans and government restrictions pummeled income. “We did not anticipate the carnage or the widespread effect,” says Gaw. Of the 39 hotels Gaw Capital manages or owns either in part or full, fewer than half were running in December, when Gaw held a virtual interview with Forbes Asia. Since then, all but six have reopened.

The pandemic took a similar toll on the Gaw family’s Pioneer Global Group. The Hong Kong-listed property and hotel investment company saw first-half net profit to September 2020 fall 80% from the year before to HK$23 million ($3 million), following a 90% drop for the year ended March 31—the combined fallout from Covid-19 and social unrest in the city. Despite those declines, Gaw reappears on this year’s Hong Kong’s 50 Richest at No. 44 with a net worth of $1.6 billion. Gaw shares his fortune with his family, including his mother Rossana Wang, who chairs Pioneer Global, and brother Kenneth, its managing director; their wealth estimate is based on the family’s combined public and private shareholdings. “Covid hit all of us hard,” says Gaw, 52. But “not everything should be rosy all of the time. We are always going to have our difficulties. It’s ‘How do we persevere?’”

Gaw Capital’s assets under management have nearly doubled in the past three years to $27 billion.

Gaw started out investing in distressed U.S. real estate in the 1990s. He launched Gaw Capital in 2005 with Kenneth, now 50; sister Christina, 47, joined them three years later. The apples didn’t fall far from the tree: their late father Anthony founded Pioneer Global in the 1970s and led the group’s expansion from textile manufacturing to banking, shipping and property.

With its fourth partner Humbert Pang, who heads the firm’s China investments, Gaw Capital has raised $16 billion—mainly from endowments, pension funds and sovereign wealth funds—for 12 different funds, making it the second-largest real-estate private equity firm in Asia by funds raised and the 13th largest worldwide, according to industry publication PERE.

Combined with capital appreciation investments made using debt, Gaw Capital’s assets under management have nearly doubled in the past three years to $27 billion. “They have also built an enviable reputation for having the ability to attract overseas capital,” says Kam Ee Fai, head of research and data operations at London-based global research firm Preqin. “If [the firm] continues to produce attractive returns for their investors, such a diversified base of capital base positions them well for the future.”

It’s early days still but investors are returning to the table, Gaw among them. His firm was part of a group that paid almost HK$10 billion in December for Hong Kong’s 21-story Cityplaza One office tower, the city’s biggest sale in 2020. In June it completed its purchase (for an undisclosed sum) of the 46-story office building in Hangzhou, China, that houses Alibaba’s cloud computing division, giving Gaw Capital a beachhead in the country’s growing tech hub.

The new economy is a big part of his firm’s plans, Gaw says, as it seeks to ride accelerating growth in e-commerce. Gaw Capital’s logistics venture—a tie-up with warehouse developer Vailog China to buy and manage warehouse facilities—represents a 3% chunk of the firm’s portfolio. It’s also investing in data centers, which Gaw says now make up roughly 7% of its global portfolio. The firm has partnered with data center operators in China and raised $1.3 billion in a funding round last year. “It’s a very high-barriers-to-entry-sector,” says Gaw. “If you have enough capital and you have a head start, you can actually run pretty fast.”

In the U.S., home to more than 10% of the firm’s investments, Gaw and his partners are waiting for bargains to emerge. Gaw predicts that will happen once government subsidies and forbearance agreements end, and highly leveraged property firms, particularly hotel owners, face pressure to sell. Large institutional investors “who believe we will see the right opportunities,” Gaw says, are lining up to invest in a property rebound.

Until then, Gaw says the firm is working to preserve all the cash it can, including renegotiating loans on some U.S. assets. It will likely take at least three years for the hospitality industry to recover to pre-Covid-19 levels, he predicts, so Gaw Capital has been extending loans to U.S. hotels the firm believes will eventually recover, he says. “Hotels and resorts, experiential leisure destinations will take advantage of the pent-up demand. But urban hotels catering to business travelers will be slower to come back,” he says.

Demand is even weaker in retail, according to CBRE, where the pandemic is speeding the shift from brick-and-mortar to online shopping. Fortunately for Gaw, retail accounts for just 6% of Gaw Capital’s portfolio. Gaw says the firm’s 29 shopping centers in Hong Kong are doing well and that its U.S. holdings have maintained stable cash flow.

The lion’s share of the firm’s investments, 46%, are in office space, which so far has held up, says Gaw. Though much attention has been given to how the pandemic is altering how people work, Gaw is sanguine on demand, particularly in Asia. Working from home isn’t as viable in Asia’s denser cities and smaller homes, he says, and social life often revolves around colleagues. “Relative to the year before there are a lot more headaches,” Gaw says.“But I think we are weathering the storm relatively well.