Blackstone in Due Diligence to Enter Hong Kong Rental Residential with $96M Deal

The world’s largest real estate fund manager may be about to enter Hong Kong’s rental residential market, with Blackstone understood to be in advanced talks to acquire two Hong Kong serviced apartment blocks from local living operator Chi Residences.

The US private equity titan is said to be in exclusive due diligence for the 107-unit Chi 138 in Wan Chai and the 59-unit Chi 314 in Jordan, according to market sources who spoke to Mingtiandi, with the company reported to be cooperating with rental housing operator Dash Living. Blackstone is discussing purchasing the pair of properties, with the price point reported by local media to be HK$750 million ($96 million), or the equivalent of HK$4.5 million per unit on a combined basis.

Launched in 2007 by hospitality entrepreneur Philip Morais following his sale of the Shama serviced apartment portfolio to Morgan Stanley Real Estate and Gaw Capital Partners a year earlier, Hong Kong-based Chi in July was reported to have sold the 19-unit Chi 120 in Sai Ying Pun to a private buyer for HK$188 million ($24 million).

Blackstone and Chi Residences are still in negotiations over valuation and the transaction is not certain to proceed, according to the sources. Blackstone declined to comment on the reported deal, while Chi Residences and Dash had not yet responded to Mingtiandi inquiries by the time of publication.

Exiting at a Discount

Following the Sai Ying Pun sale reported in July, should Chi Residences succeed in disposing of the Johnston Road and Nathan Road properties at the reported deal price, the company would have brought in a combined HK$938 million, which would represent a 43 percent discount to the portfolio’s estimated HK$1.65 billion valuation as of March 2023.

The assets had been collectively put on the block from as early as April 2022, with the portfolio described at the time as being worth HK$2.2 billion.

Chi 138 – the largest of the three properties – is located opposite the Wan Chai MTR station at 138 Johnston Road, while Chi 314 is situated steps from the Jordan MTR station at 314-316 Nathan Road.

In July, a private buyer reportedly paid HK$8,174 per square foot to purchase Chi 120, which is located a two-minute walk from the Sai Ying Pun MTR station at 120 Connaught Road.

Market sources indicate that Chi Residences faces the impending maturity of a HK$1 billion ($128 million) loan from HSBC. In June 2023, Morais and his wife Eileen reportedly put their penthouse on Australia’s Gold Coast on the market for A$7 million.

Should this latest deal be consummated, the transaction would mark Blackstone’s entry into Hong Kong’s rental residential market as other global players have passed on opportunities this year. Earlier the private equity giant had been active in the city’s industrial market, including acquiring over HK$2.5 billion worth of industrial properties in recent years under its joint venture with Hong Kong-based self-storage operator StoreFriendly.

Two Prior Sales

Born in Hong Kong to Macanese parents, Morais is chairman of Chi Residences while his daughter Pilar serves as the company’s CEO. The duo also operate hospitality management company Chi International as well as Chi Management Limited, which manages the Chi Residences assets as well as commercial and retail properties in Hong Kong, Shanghai, Australia, Fiji, the Philippines, the UK, and the US.

Chi Residences had earlier disposed of two serviced apartment assets in Hong Kong, including selling Chi 138 in Sai Ying Pun to a 50:50 joint venture of HKEX-listed investment firm Hanison Construction Holdings and US private equity firm Angelo Gordon in 2018 for HK$730 million.

Rebranded as The Connaught hotel in 2019, the asset was put up for sale earlier this week for HK$600 million after the joint venture had initially sought HK$1 billion for the 52-key property. Hanison in July also began marketing the The Mercer serviced apartment building in Sheung Wan.

In 2019, Chi Residences sold the 21-unit Chi 393 in Yau Ma Tei to local paint and property firm CNT Group for HK$183 million.

Last Sector Standing

With transactions of commercial properties in Hong Kong sliding 25.6 percent year-on-year during the first half of 2024 to a post-pandemic low of HK$13.2 billion, according to JLL, rental residential has become one of the few property classes welcomed by buyers.

Local developer Crystal Investment over the past three months acquired a pair of rental residential assets in Hung Hom and Cheung Sha Wan for a combined HK$343 million, with both properties set to be operated as student housing facilities under the company’s YX platform.

Earlier this year, PGIM Real Estate teamed up with co-living provider Dash Living to buy The Sheung Wan hotel from Hong Kong-based boutique hotel and serviced apartment provider Ovolo Group for HK$320 million ($41 million).