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THE FRONTIERSMAN

Robert Welanetz brings Western experience to Asian retail development

By Steve Bergsman

Robert F. Welanetz, recently chosen to head the C2 Group, Ivanhoe Cambridge’s joint venture in Asia with Shanghai Kinghill, refers to the venture simply as “the best of the East and the best of the West.” (The name C2 is taken from the first letter of Canada and China.)

To be sure, Welanetz himself could be seen as personifying an appropriate bridge for the two: Not only has he traveled the world, but spanned the industry, too. Over the past two decades he has worked at The Hahn Co., Jones Lang LaSalle, Lend Lease Retail, Pan Pacific Development and Yarmouth Group Property Management.

That’s quite a record, but this was no case of being peripatetic. No, Welanetz was merely riding out some of the consolidations in the real estate industry. Yarmouth was acquired by Lend Lease, which eventually sold its property and facilities management to Jones Lang LaSalle-Retail Americas. At that stop he became CEO of retail. Eventually, he left Jones Lang LaSalle to pursue real estate investment and development consulting before succumbing to the lure of Asia.

Today Welanetz is CEO of Shanghai Kinghill, a real estate arm of Thailand’s massive Charoen Pokphand Group, better known to real estate investors as CP Group. Charoen Pokphand owns about 400 subsidiaries in some 20 countries. Its investments in China total over $4.5 billion. Among its real estate and retail plays are the development of the 2.6 million-square-foot, 13-story, Super Brand Mall in Shanghai; ownership of Lotus Supercenters, the second-largest hypermarket in China; and the development of some community-based shopping centers.

Because the group and Shanghai Kinghill have a solid history of investing in China, it was the perfect choice for a global institutional investor looking to break into the market. Caisse de dépôt et placement du Québec, Canada’s largest institutional fund manager, thought so, anyway. Caisse de dépôt has been a major investor in retail properties. It owns 65 regional and super-regional shopping centers, amounting to 43.2 million square feet, mostly in Canada, but also in the U.S. and Europe. This year Caisse de dépôt real estate subsidiary Ivanhoe Cambridge decided it could best expand its presence in China through the venture with Shanghai Kinghill, and C2 was born.

“When I first met Dhanin Chearavanont, the chairman of the CP Group, he was very aware that since his company started investing in China in 1979, it had grown most of its businesses organically, but that part of the cycle was probably ending,” said Welanetz. “And the businesses that were going to be most successful going forward were going to accomplish growth initiatives by collaboration with international sector specialists.”

The ability to take a market-savvy business operator like CP Group in China and connect it to an industry-savvy shopping center practitioner like Ivanhoe Cambridge, “seemed to be a powerful way to collaborate, get the best skills from both companies and come out with a better formula to be able to meet the market opportunities,” Welanetz said.

He foresees a wide mix of activities for C2, including acquisitions, building properties from the ground up and managing assets for others. “Given the current state of the China market, there will be much work on the front end of services and in partial acquisitions,” said Welanetz. “In other words, we may go in and venture with someone who has already built an asset, but it needs services, leasing capabilities and a portion to be monetized, yet the owner wants to stay in the game at 50 percent ownership. We will be doing some of those types of deals on the early side of the joint venture, or at least until our development pipeline builds.”

Initially, C2 will work solely on retail real estate in China, though over time it will probably explore opportunities elsewhere in Asia. The reasons for the China focus are fairly obvious, Welanetz says. “You cannot argue with the basic fundamentals that drive the retail real estate industry,” he said. “In China the retail industry GDP growth was north of 10 percent. Actually, second-quarter 2006 growth was higher than that. Retail sales have been growing north of 12 percent on an annual basis. The growth and development of the Chinese middle class and consumer expenditure power is undeniable.”

Welanetz remains high on China for yet another, more basic reason. “From a North American perspective, there is always some concern about central control, government involvement and land-rights usage,” he said, “but after seeing how the government works, there is direction and government restraint.”

Though others might think differently (among them Wal-Mart, which recently was forced by the government to accept unionization of its stores), Welanetz says the government bureaucracy is very disciplined, making the right decisions in developing the economy and adding transparency to the banking and legal systems. “The evolution of China’s business environment is going very well,” he said. “It doesn’t seem as chaotic as a lot of other emerging-market situations.”

Still, because he is based in Shanghai, Welanetz knows enough about China not to be a Pollyanna. “To an outsider, it can all seem very onerous, but if you have a track record and know how to navigate the approval system, life can be easier.”

In the near term, one shoal that will have to be navigated by any company operating in China is the risk that the economy may cool. Further, China must deal with the problem of urbanization, says Welanetz. “Shanghai, for example, is getting about 600,000 residents a year and just cannot keep up with growth and infrastructure development.”

Welanetz has traveled throughout Asia and is familiar with most of its countries in regard to retail development. Hong Kong’s growth has been phenomenal, he says, while India boasts strong fundamentals and a lot of early-stage development. Japan is a mature market, Malaysia is seeing a lot of development, the Philippines is very advanced from a shopping center development standpoint, Singapore is a stable market, Thailand is very strong, and Vietnam and Cambodia represent outstanding opportunities for the future. But in Asia, like Europe, each country is a completely different market at a completely different point in development, he says.

“Each market is unique,” said Welanetz. Some might say the same about him. How many other real estate executives hold a degree in zoology (earned at Colorado State University in 1975)? Nothing strange about that, says Welanetz, insisting that it’s perfect training for the wilder frontiers of the retail real estate business.