03 October 2019

Warburg Backed Mofang Becomes Largest Rental Apartment Player In China

Mofang is a long term apartment rental manager in China. The company presently manages 70,000 individual apartments found in all of the major cities throughout the country. Backed by Warburg Pincus, Mofang Apartments closed $150 million in a funding round. Participating as lead was CDPQ Caisse de dépôt et placement du Québec the Canadian fund manager. The two jointly announced the major financial milestone.

Mofang has revealed its intentions of utilizing the cash infusion to make additional property acquisitions. Their target market is the fast developing sector of rental housing. They are also planning to expand into creating their own franchise business. The fresh funds will ensure the Chinese company has plenty of general operating capital.

Mofang Taking Long Term Apartment Rental Market By Storm

Mofang has gained considerable media attention from the participation of its largest shareholder Warburg Pincus. Alex Zheng the Chinese mainland hotel entrepreneur runs the huge rental apartment managing company. They have now increased their total of raised funds to $550 million since they started the company back in 2010. Caisse's investment represents only the latest major interest in the Chinese company by a significant international conglomerate. Caisse is a major player in investments with its $231 million of net assets under management.

Mofang has gained a huge amount of public recognition for its professional capabilities and operations that have helped it to become a great success story in 20 different important cities throughout China. Caisse has indicated its enthusiasm for working side by side with colleague investor Warburg Pincus and the Mofang leadership team. Between the three of them, they anticipate improving their already market-leading position in the industry.

Over the last three years, the rental housing market in China has quickly expanded. This is in no small part due to the national government having encouraged the rental market. They see it as a safety counter-measure for escalating housing prices in the big cities. It also is a means of encouraging the professional class in its mobility.

Mofang has enjoyed such fundraising success in the not so distant past as well. Their last fundraising effort culminated with $300 million out of the Chinese mainland fund manager AVIC Trust back in 2016. They have deployed part of this cash to add on to their apartment portfolio. These apartments are geared towards young professionals and recent graduates, both of whom require housing that is both accessible and affordable.

Their prices are affordable too. In the leading Chinese mainland cities like Beijing and Shanghai, their rental units start from the equivalent of $745 each month (RMB 5,000). For the second and third level cities in China, these apartments start from 3,000 RMB ($450 per month).

Mofang's Business Model for Successful Operations

Mofang has already established a successful business model in only a decade. They usually obtain (from landlords) longer-term leases for whole industrial and commercial buildings. After renovating these, they then handle the leasing out of the building units to tenants. It is an approach that does not require them to take on a huge number of expensive assets.

Ironically, Mofang has benefited from the overcrowding of the space by new startup competitors over the last several years. They have been able to draw from their impressive capital infusions to take major stakes in their fledgling competitors. This has allowed them to buy Wowgu in Guangzhou as well as V-Land the apartment provider to youth based in Shanghai over the past year. Their V-Land acquisition raised $200 million in the form of a series A round that Warburg Pincus led and closed out in April of 2018.

Zheng's history of success goes back a few years. He earned his first fortune through founding 7-Days Inn. This was among the earliest of affordable Chinese hotel chains. Warburg Pincus started financially backing it in 2007.

Mofang's New Franchise Model

Mofang has charted its own course separately from the business model of Warburg investment ventures like Hong Kong-based Weave and Shanghai-based Nova. They have not poured money into purchasing properties as many have done. Lately, they have started moving to a franchise model. This will permit them to work hand in glove with local governments and developers together to increase their managed properties portfolio.

Warburg is also active in the markets independently of Mofang. Besides Weave and Nova, Warburg has funded Ziroom the rental housing management company to the tune of over $620 million. Warburg Pincus led that consortium with Sequoia Capital China and Tencent, along with Sunac the mainland property developer.

Mofang's recent statement of the latest funding round also laid claim to the company having become the biggest institutional manager in the apartment arena based on room numbers in the market. Their operations now cover cities such as Shanghai, Beijing, Shenzhen, Guangzhou, Wuhan, Nanjing, Hangzhou, Suzhou, Xi'an, and Chengdu.