Gaw Capital Takes 49% Stake in $1.9B Buyout of Swire’s Cityplaza

Half a month after Gaw Capital was first reported to be teaming up with Chinese investor Chen Changwei in an effort by the tycoon’s Hengli Group to purchase a pair of Hong Kong office towers, the private equity firm is confirmed as having taken a nearly half stake in the buyout of Cityplaza Three and Four, according to an announcement to the Hong Kong stock exchange.

In the notice to the exchange, Swire Pacific Limited and Swire Properties, which own the pair of grade A office assets in Hong Kong’s Quarry Bay area, confirmed that a vehicle controlled by Gaw’s Gateway Fund VI has taken a 49 percent stake in Hengli’s purchase of Cityplaza Three and Four, over four months after a unit of Hengli agreed to buy the buildings from Swire for HK$15 billion ($1.9 billion).

The announcement didn’t disclose the financial terms of the Gaw fund’s purchase of the stake in the investment, which had been the subject of a number of market rumours in recent weeks, including reports that the Hong Kong real estate investment firm was paying as much as HK$15 billion for a 65 percent stake in the properties.

Hengli is reported to have turned to private equity partners for financing after bank credit dried up in the face of a downturn that saw transactions of office assets in Hong Kong fall by 76 percent during the third quarter, compared to the period from April through June. Chen’s Hengli Group will retain a 51 percent share in the buyout vehicle.

Hengli Sells Equity Stake After Loan Market Dries Up

When Hengli agreed to buy the pair of 1990s-vintage office blocks in June, market sources indicated, as reported by Reuters, that the mainland group’s plan was to secure mezzanine financing for as much as 80 percent of the purchase price, before beginning to resell units in the building on a piecemeal basis, once the acquisition was concluded.

This approach mirrored the strategy taken by a group of Hong Kong investors who paid a record $5.2 billion to acquire the Center on Central’s Queen’s Road in November last year.

However, at least some of that investment consortium, which was included local tycoon Pollyanna Chu and Shimao Property Holdings chairman Hui Wing Mau, are now said to be turning to Macau banks in the hopes of paying off bonds with double-digit coupon rates that the group had issued to finance their acquisition of Hong Kong’s second-tallest building.

Facing similarly challenging market conditions, Hengli had reportedly made the rounds of banks in Hong Kong hoping for mezzanine financing following its June acquisition, but without being able to secure loan financing on agreeable terms.

Investing When the Market Slows

The scarcity of loan financing may have created an opportunity for Gaw, which last month reached a $1.3 billion first close on its Gateway Fund VI, the family run firm’s most recent opportunity fund.

Both privately held, neither Gaw nor Hengli had issued any statement on the transaction as of the time that this story was published.

While active in the US, Europe and across Asian markets, Hong Kong remains Gaw Capital’s headquarters and the private equity firm continues to invest in their home base.

In November last year the firm headed by Goodwin Gaw teamed up with Goldman Sachs to buy a portfolio of Hong Kong retail centre from the Link REIT for HK$23 billion, in what was the company’s biggest acquisition ever.

In 2015, the firm, backed by overseas institutional investors, paid $938 million to acquire the 503-room Intercontinental Hotel in Kowloon from the Intercontinental Hotels Group.

Gaw Gets Another Piece of Hong Kong

Now the private equity firm will own a 49 percent state in Cityplaza Three and Four, a pair of properties with Swire may have seen as disposable as they ramp up leasing for the upcoming One and Two Taikoo Place projects, closer to the core of their Quarry Bay portfolio.

Cityplaza Three is a 21-storey building which spans a gross floor area of around 448,000 square feet (42,000 square metres). While the adjoining Cityplaza Four, built in 1993, offers 556,000 square feet of office spaces. Swire has full ownership in Cityplaza Four, while ten floors in Cityplaza Three project are owned by the Hong Kong government,

The two buildings house international tenants including Adidas, American Express, Deloitte, Wells Fargo Bank, Sony Pictures and Thompson Reuters.