PGIM Real Estate has agreed to acquire a boutique hotel in Hong Kong’s Sheung Wan district as the fund manager continues to snap up hospitality assets in the Asian financial centre for conversion into rental housing.
The property investment arm of US insurance giant Prudential Financial has signed a deal to purchase The Sheung Wan from Hong Kong-based boutique hotel and serviced apartment provider Ovolo Group for HK$320 million ($41 million), market sources confirmed to Mingtiandi on Friday.
The 56-key hotel, which has been managed by Hong Kong-based co-living provider Dash Living since March 2021, is set to be PGIM’s third purchase of a Hong Kong hospitality asset, with the company having acquired two hotels in 2022 and converted them into co-living apartment projects.
“Institutional investors like us can play a pivotal role in fostering the growth of this sector by providing an attractive and affordable housing solution for young professionals and other renters in the region,” Bennett Theseira, PGIM Real Estate’s head of Asia Pacific, said in a September 2023 update on its Asian rental housing portfolio. “Despite the challenging market conditions, we believe the rental housing sector will benefit from favourable demographics and strong rental demand growth. We expect the sector to provide the sustainable income and return that investors are seeking in a volatile, inflationary environment.”
PGIM Real Estate and Ovolo Group had not responded to Mingtiandi inquiries by the time of publication. Dash Living representatives told Mingtiandi that the company does not have any information to share regarding the transaction at this time, but highlighted the rental housing specialist’s commitment to expansion amidst increasing demand for short and long-stay accommodation in Hong Kong and elsewhere in Asia.
Betting on Central Beds
Located a five-minute walk from the Sheung Wan MTR station on 286 Queen’s Road Central, the property has a gross floor area of 26,000 square feet (2,415 square metres) across 24 storeys, with guest rooms spanning floors 5 through 24. The third floor features a gym and self-service laundry facilities, while a restaurant occupies the first two floors.
The asset, which is set to change hands at a price of HK$5.7 million ($730,601) per key, was constructed as a commercial building in 1999 and acquired by Ovolo in 2004 for a reported price of HK$59.3 million, according to local media accounts which first reported the transaction.
The purchase marks Newark-based PGIM’s second tie-up with Dash Living, with the co-living operator also managing the fund manager’s Dash Living on Hollywood project, which is located just minutes from The Sheung Wan. Centaline Group’s capital markets division is reported to have advised on the transaction, with representatives of the property agency declining to comment in response to inquiries from Mingtiandi.
Formerly operating as the Travelodge Central Hollywood Road, PGIM acquired that property at 263 Hollywood Road from fund manager Pamfleet (since acquired by Schroders) and Singapore-listed investment company ICP in January 2022 for a reported HK$850 million ($109 million).
Just a few months after that deal, PGIM teamed up with Weave Living to purchase the 435-key Rosedale Hotel across the harbour in Kowloon for HK$1.37 billion ($175.4 million). Following the purchase, the partners rebranded the hotel as Weave Studios – Kowloon West.
PGIM had also been in discussions in October 2021 to acquire the 162-key Hotel Casa in Kowloon’s Yau Ma Tei area, but the transaction did not materialise, according to market sources.
PGIM Real Estate, which managed and administered $8.1 billion of assets in Asia Pacific and $208 billion of assets globally across core, core plus, value add and debt strategies as of September 2023, has also been betting on residential assets in mainland China and Australia.
Rental Market Pulls in Funds
The US fund manager joins a growing list of investors scouring Hong Kong for beaten down hotel assets to convert into rental apartments or student accommodation, with the Hong Kong government’s drive to attract foreign talent helping to drive rental demand.
Since the government launched the programme in 2022, the talent schemes had resulted in an influx of 70,000 people as of November 2023, according to Hong Kong’s chief executive John Lee.
“Looking ahead to 2024…investors are likely to focus on well-positioned hotel assets in good locations with conversion potential into co-living, multi-family and student accommodation properties, supported by the revival of visitor arrivals and growing demand for rental apartments from incoming professionals and students,” Tom Ko, head of capital markets for Cushman & Wakefield in Hong Kong, said in a December report.
In March 2023, US developer Hines opened its first Hong Kong rental apartment project in East Tsim Sha Tsui. Also operated by Dash Living, the Dash on Prat co-living facility occupies the former Butterfly on Prat hotel which Hines had acquired in November 2021 through a joint venture with local investment firm Mindworks Ventures, which also backs Dash.
That deal came a few months after local developer Wang On Properties partnered with US private equity shop Angelo Gordon to purchase the 695-key Pentahotel in Kowloon from New World Development for HK$2 billion ($260 million) with plans to convert the hotel into a 720-room student accommodation property.
In December 2021, Boston-based fund manager AEW Capital Management teamed up with local developer Crystal Investment to purchase the 388-room Hotel Sav in Kowloon’s Hung Hom area for HK$1.65 billion ($210 million). The partners later turned the property into the Y83 student hostel.
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