US developer touts new take-off in Mongolia, sets up S’pore office

May 30, 2015 by Leu Siew Ying

If American developer Lee Cashell has been absent from the Singapore scene after launching his Olympic Residence project, it is because he has been too busy making money in Ulaanbaatar, the Mongolian capital. Recently, the fast-talking affable former fund manager has resurfaced with new properties to launch and plans to take his company to market.

Seared in a café by the Singapore River, Cashell, CEO of Asia Pacific Investment Partners (APIP), says he “kind of forgot” about Singapore during a commodities-fuelled boom in Mongolia that kicked off about the time he launched Olympic Residence in 2010 until last year, when it went bust. “Mongolia boomed so much I didn’t need to sell real estate outside. I was just sitting in my office,” the balding 40-something says. “No need to worry [Where I have gone]. I am still there for sure.” During that period of heady activities, which propelled Mongolia’s economic growth rate in 2011 to 17.5%, the highest in the world, the only overseas markets that he was looking at were London and Hong Kong. “And I say, oh God, Singapore is down there. It is such a good market and the overseas property market is booming and I don’t have anyone here and I keep saying we must set up and office in Singapore. And now we have.

Mongolia has just emerged from what Cashell calls a “one-time bad year” in 2014, when the commodities slump, coupled with politics that froze plans to develop the massive Oyu Tolgoi copper mine, drove the economic growth rate down to 7%. Norovyn Altankhuyag was ousted as prime minister in November and replaced by Saikhanbileg Chimed, who has moved fast to resolve the dispute with Rio Tinto Group, the 50.1% – owner of the mine and the country’s largest foreign investor. “I feel we are at the beginning of another take-off,” says Cashell, who first went to Mongolia 13 years ago when he was working for his then employer, Nomura Holdings’ private equity arm JAFCO. “ I have to start building again. It takes us one year to build to complete a project with 30 units,” he says.

Attracted to Mongolia

Cashell, who was based in Hong Kong for JAFCO, was responsible for China, which he found a difficult market to operate in. He liked what he saw in Mongolia and, with US$30,000 in his back pocket, left for its open spaces and started building housing for expatriates. He was 10 years ahead of the crowd that swarmed into Mongolia after 2008 global financial crisis, and proud of it. He was drawn by the resource-rich and cash-starved country’s investor-friendly environment. Mongolia, a democracy, has low tax rates, no capital gains tax and no currency control. “But nobody knew about Mongolia. It was kind of obscure.

The one bad thing about Mongolia is that it does not know how to promote itself,” Cashell says. He started small but made money for the people he sold his properties to. Among them is a Dutch couple who later became a business partner of sorts. “My first piece of land,” he says, bursting out in laughs as he recalls how he started. “Let’s say the first big development we did, the land was bought for us by a Dutch family, who had made a lot of money from us, and I asked them to buy land for us.”

Cashell says he gave the couple six apartments in his project to pay for the land. He also did not have money to hire professionals but convinced a South Korean architect to accept an apartment in payment for his service. “They received 300% returns from their apartments,” he says.

Over time, Cashell made enough profits to amass a land bank that will last him the next 15 years. Since 2010 when he launched Olympic Residence in Singapore, he has grown much bigger and better at what he does, he says. He is now considering tapping the equity market to avail of opportunities that Mongolia presents, including expanding his cement factory and growing his credit business. As Mongolia’s fledgling banking industry does not have the capacity to lend him more than US$8 million ($10.9 million) for his projects, he finds himself resorting to pre-sales.

“When I do pre-sales at an early stage, I am missing potential profits. Yet, I am still in that phase where I have to pre-sale a large proportion of my building because banks in Mongolia can’t give me big loans. That is the difficulty of being a property developer in a frontier market with no access to capital markets,” he says. It is also impossible to borrow offshore. “Let’s say I have been having hopeful discussions with banks over the past 13 years and the answer 100% of the time is ‘no’,” he says.

Looking to Singapore

Now, the company’s shareholders are considering floating the business and they are looking at Singapore because they have sold properties here and are familiar with the market. Cashell’s link with Singapore dates back to his private-equity days when he had to regularly report at JAFCO’s office in the office tower above the riverside café, where he is sitting drinking his latte. He says, “There is a growing relationship between Mongolia and Singapore. There are number of frontier developers listed here. This is a place that understands properties very well. Singapore is surrounded by frontier markets and emerging markets. It is very familiar with growth patterns in such markets and the way things evolve. It’s one of the places we are looking at.”

If he had his wish, he would want to put $40 million into the cement factory to expand its capacity to 500,000 or one million tonnes a year. “I would put around $100 million in debt and equity into my lending company, $100 million into property and buy $100 million worth of distressed properties that is already yielding 14% to 15%,” he says. He thinks $150 million would be a good start, however, if he brought the company to market. Going by his track record, he is confident there will be a following for his stock. Back in 2009, when Mongolia was just starting to become cool, Cashell dropped into town and invited a group of Australian and British hedge fund managers to dinner. He asked them to allow him to make them a presentation on Mongolia, and soon walked away from the table with US$3.8 million from 10 investors. Those investors later introduced him to other investors. “Mongolia takes a lot of convincing. You have to find the right people. It’s not easy to sell Mongolia but it can be done,” he says. The way to do it is to find the people who would know about Mongolia, and there are typically hedge fund managers who can be found in London, Singapore and Hong Kong. In the end, Cashell did not get any money from hedge funds, just from the managers. He says he tells them the story of Perth’s and San Francisco’s mining boom but does not get to finish his tale because his audience already knows that the millionaires spawned in those cities made their money from real estate. “They say, ‘Stop, I am going to give you my money,” says Cashell.

Then, there is the experience of Yoma Strategic Holdings, a property developer in Myanmar that is remarking itself as a conglomerate with interests in auto distribution, agriculture and tourism. “Some of the very smart hedge fund managers and stockbrokers that invested in Yoma before it went public are also shareholders of my company,” says Cashell. Now, with a presence in Singapore, he is going after more of that smart money.

SOURCE: The Edge Singapore