Pollution cleanup firm eyes land in Asia

Cherokee raises $200 million for effort

Cherokee Investment Partners, a Raleigh business that cleans and redevelops polluted properties, is expanding its reach into Asia.

The private equity firm recently raised the $200 million Cherokee Special Situation Fund, which would target brownfield investments in China, Japan and other countries in the Far East, Tom Darden, Cherokee's chief executive, said Thursday.

It is Cherokee's fifth fund, and it is the company's first targeting Asia. Cherokee is building on its brownfield cleanup experience in North America and Western Europe.

"It's just taking what we do here to a different geographic area," Darden said.

Most of the properties Cherokee buys are contaminated with oil or chemicals -- deals few investors are willing to attempt.

The company takes advantage of that, paying bargain prices. It then cleans up the properties and sells or redevelops them for a sizable profit.

With the help of its previous funds, Cherokee has acquired at least 520 properties in the U.S., Canada and Western Europe with a value of at least $1.8 billion since 1993. Cherokee's most recent fund, Cherokee Investment Partners IV, raised $1.2 billion -- about twice the size of the Cherokee Investment Partners III fund.

The company still has about $1 billion in Cherokee IV to spend on deals in the U.S., Canada and Western Europe.

In the past, Cherokee's funds -- which consist primarily of institutional investors such as university and state employee pension funds -- have promoted returns of almost 25 percent.

Targeted net return for real estate private equity funds averaged 16.3 percent last year, according to an Ernst & Young survey.

A flood of private equity has chased returns in U.S. real estate in the past four years. But increasingly, funds are looking for opportunities in emerging markets as business climates in those areas mature and as gains in U.S. real estate slow in the face of a national lending crisis.

"Today, as real estate goes, there's two areas where you can really drive the potential for an increase in returns," said Josh Herrenkohl, a senior manager in Ernst & Young's business risk services group. "One is development -- brownfield- or greenfield-type assets. The second is going to be emerging markets. ... There's increased risk that goes along with it. But there's a higher potential for returns."

Darden said the company is still examining where to invest the newest fund.

Private equity is becoming particularly crucial in China, where foreign investors are facing increased government restrictions in financing real estate deals.

"After many years, Japan's land prices are increasing," the Ernst & Young survey said. "Japanese funds see real estate as a relatively safe investment that offers competitive returns and an opportunity for portfolio diversification."