RRJ Capital raising up to $1 billion real estate fund


* Fund initially seeking $500 million

* Targets include residential, retail, hospitality andelderly care homes

* RRJ "bullish" on China economic growth and stability

By Stephen Aldred

HONG KONG, Nov 18 (Reuters) - Asia private equity firm RRJCapital is launching an up to $1 billion real estate fund thatwill mostly target investments in China, the firm's founder,former Goldman Sachs dealmaker Richard Ong, told Reuterson Monday.

RRJ's new fund, which is initially seeking $500 million,will focus on residential, retail, hospitality and care homesfor the elderly, and is expected to close in the first quarterof next year, Ong said. The fund will target a 25 percent to 30percent return on investments.

Global private equity firms have stepped up their Chinesereal estate investments this year, betting the sector willbenefit from Chinese government support for housing programmesaimed at providing affordable housing to China's urban middleclass.

Buyout firms are also ploughing more money in China as smalland mid-sized real estate firms tap alternate funding sourcesdue to tighter liquidity.

"We are very bullish on China's economy and expect stable,good growth. Depending on demand, we may expand the fund to upto $1 billion," Ong said, adding it would avoid prime officespace because the sector is more competitive and offers loweryields.

Blackstone Group, Carlyle Group, TPG Capital and RRJ have all completed China real estateinvestments in recent months. By early November, private equityinvestments in China's real estate sector had risen 53 percentto about $1.2 billion, according to Thomson Reuters data.

The growing interest from private equity firms in Chinesereal estate comes as home prices in the world's second-biggesteconomy have hit record highs despite a four-year governmentcampaign to cool the property market. That is adding to fears ofa price bubble in the property sector..

RRJ has already invested in $150 million worth of equity andbonds of Hong Kong-listed China property developer CIFI HoldingsGroup Co Ltd.

Blackstone, the world's biggest private equity real estatefirm with $69 billion in assets under management, recently madeits largest investment in shopping malls in Asia when it agreedto pay around $400 million to buy a stake in Chinese developerSCP Co Ltd.

Among other deals, U.S. buyout firm Carlyle in August saidit would invest around $200 million with U.S. investmentmanagement firm Townsend Group to buy and build 17 warehouses aspart of plans to build a logistics platform across China.

TPG invested $108.6 million in U.S.-listed China propertycompany Xinyuan Real Estate Co Ltd.

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