Receivers Field Offers for Former Cheung Kei Hong Kong HQ After 64% Drop in Value

Receivers for creditors of Cheung Kei Group have received at least two offers for the defaulted mainland property firm’s former Hong Kong headquarters after the grade A property lost nearly two-thirds of its value over the past two years.

Market sources told Mingtiandi that China Telecom and a major Hong Kong-based developer have separately submitted bids for the East Tower of the One HarbourGate complex in Kowloon’s Hung Hom area, with the reported asking price of HK$2.5 billion ($321 million) representing a 64 percent decline from the asset’s HK$7 billion ($896 million) valuation in 2022.

“In the real estate landscape of 2024, distressed properties have taken centre stage, with numerous transactions being executed at remarkably enticing prices,” said Godfrey Cheng, deputy senior director of investment CEO office at Savills Hong Kong, which is managing the sale.

The harbourfront office block formerly known as the Cheung Kei Center last year was seized by creditors of entities controlled by Cheung Kei boss Chen Hongtian as his company struggled with a liquidity crisis, which led to a string of defaults and triggered repossessions of the tycoon’s global assets, including luxury homes in Hong Kong and office towers in London.

Second Sale Attempt

At HK$8,961 per square foot, the asking price for the property represents a 44 percent decline from the HK$4.5 billion (HK$16,129 per square foot) Chen paid to acquire the asset in 2016 from the building’s developer, Hong Kong’s Wheelock Properties.

The 17-storey building at 18 Hung Luen Road currently serves as the headquarters of Canadian insurer Sun Life’s Hong Kong operations and totals around 279,000 square feet (25,920 square metres) in gross floor area, including 254,000 square feet of office space across 15 floors. The property also features a 26,000 square foot, two-storey retail podium and 155 parking spaces.

The latest marketing exercise, which closed on Tuesday, followed an earlier Savills-managed tender which concluded in August last year without a transaction being consummated. The consultancy said the property has drawn interest from both local and mainland buyers since last year.

“As we venture into the latter half of 2024, the commercial property market has undergone a period of adjustment, moving away from its previous peaks and marked by several substantial transactions,” Raymond Wan, chief senior director of investment at Savills Hong Kong said in a statement launching the marketing campaign last month. “This shift in market dynamics has cultivated an environment where buyers are primarily focused on acquiring high-quality assets, viewing the current climate as an opportune moment to secure these highly coveted properties.”

Chen is said to have borrowed over HK$4.5 billion in 2019 from a consortium of lenders including Hang Seng Bank, which appointed a pair of PricewaterhouseCoopers partners as receivers of the asset in March 2023.

The property was 84 percent occupied as of May 2023, Savills said as it kicked off the first marketing effort last year. Capital values of grade A offices in Hong Kong have plummeted 41.6 percent from 2019 peaks through 30 June, with vacancy having reached a record high of 13.6 percent at the end of the second quarter amid weak leasing demand and oversupply, according to JLL.

The building forms one of two towers in the One HarbourGate complex, with mainland insurer China Life having acquired the West Tower from Wheelock in 2016 for HK$5.85 billion.

Wave of Seizures

One HarbourGate East Tower was repossessed around the same time that two of Chen’s luxury residences in Hong Kong were also seized by creditors. In early 2023, Bank of East Asia took over the tycoon’s 9,212 square foot mansion at 15 Gough Hill Road in the city’s prestigious Peak area, while Bank of Communications seized Chen’s 5,154 square foot apartment at Swire Properties’ Opus complex in the Mid-Levels.

Last August, receivers sold the Opus apartment at 38 percent below market value at the time in a HK$420 million deal. The tycoon had paid HK$387 million for the unit in the Frank Gehry-designed building in 2015.

15 Gough Hill Road had yet to find a buyer as of last month. Chen purchased that three-storey, six-bedroom home for HK$2.1 billion in 2016 after complaining that the Opus apartment was “a little bit too tiny”.

Chen’s financial struggles have also led to his London assets being placed into receivership and put up for sale. Earlier this year, a sale of the 5 Churchill Place office block in the Canary Wharf financial district reportedly collapsed shortly after receivers who had seized the property in May 2023 had lined up a £110 million offer for the former Bear Stearns UK headquarters.

Cheung Kei had paid £270 million to acquire that building in 2017 from investment firm Said Holdings, the same year that it purchased 20 Canada Square, located a four-minute walk from 5 Churchill Place, for £410 million from Toronto-based Brookfield. Receivers took control of that 12-storey office and retail building in June 2023 and have yet to find a buyer for the asset.

In April, Chen and his wife received demands from Nanyang Commercial Bank and Singapore’s UOB to repay over HK$1.6 billion ($200 million) in overdue loans and interest charges.

Guangdong-born Chen, who began his career in Shenzhen’s textile industry during the 1980s, pivoted into real estate development with the founding of Cheung Kei Group in 1990.