Kailong Sells 8 Floors in Central for HK$350M Despite HK Downturn

Real estate fund manager KaiLong is reported to have sold eight office floors in a commercial property in Hong Kong’s Sheung Wan neighbourhood for a combined HK$350 million ($45 million), as the Warburg Pincus-backed firm continues its strata sales strategy amid the city’s economic downturn.

The fund manager helmed by Cheng Hei Ming has disposed of the lower four storeys, as well as the eighth to eleventh floors, of the newly renovated Yue Thai Commercial Building in Central district to an unnamed investor, according to local Hong Kong media accounts.

The eight floors are among 13 levels in the commercial asset at 128-129 Connaught Road which Kailong had put on the market in April last year, after acquiring  the 25-storey building in 2017 for a reported HK$380 million.

Covering Investment Costs

Following this sale, KaiLong is now reported to have sold all thirteen floors it had made available in the building less than a kilometre west of the IFC complex after completing renovations in April of last year.

Based on the combined gross floor area of 17,200 square feet (1,598 square metres) for the eight floors, Kailong sold the assets, which have floor plates ranging from 1,530 to 3,925 square feet, at the equivalent of HK$20,000 per square foot.

The sale comes just over a year after KaiLong sold the sixth floor of the building – the fund manager’s first disposal in the property. Kailong representatives declined to comment for this story.

In that earlier deal, which was reported by the Hong Kong Economic Times in April last year, the firm sold the 1,530 square foot low-zone floor to an undisclosed investor for HK$20,500 per square foot, or 2.4 percent more than the average price per per square foot that the company achieved in this latest transaction.

Cashing in on HK Office Portfolio

KaiLong purchased the Yue Thai Commercial Building two years ago during a series of eight acquisitions across the Wan Chai, Sheung Wan and Tsim Sha Tsui areas in which the company spent HK$3.7 billion buying seven commercial properties and an industrial asset from mid-2017 through June 2018.

With these projects now at varying stages of completion, including the company’s Konnect creative office project which opened in January of this year, Kailong has said that it intends to sell slices of many of the properties on a strata-title basis.

Kailong’s Hong Kong CEO Ivan Ho told Mingtiandi in an interview in January this year that the firm is currently at work planning a 70,000 square foot commercial development in Tsim Sha Tsui, after buying two adjoining sites on Cameron Road in the Kowloon commercial district for a combined HK$1.1 billion.

The fund manager last November purchased 37 Cameron Road for HK$448 million after having acquired 35 Cameron Road for HK$650 million in 2018.

Selling as Values Slide

KaiLong has made its latest strata-title sale against a backdrop of sliding rents and declining capital values in Hong Kong, as the COVID-19 pandemic puts pressure on the city’s real estate market.

In Knight Frank’s latest Hong Kong monthly report, the property consultancy said that grade A office rents in Sheung Wan fell to HK$76.2 per square foot per month during March – a drop of 11.4 percent compared with the same month last year.

Capital values for grade A office space in the prime commercial district also slid during March, settling at an average of HK$30,793 per square foot, or 9.1 percent less than the the price during the same month one year ago. Commercial real estate investment across Hong Kong fell 62 percent to HK$7.5 billion during the first quarter of 2020, down from HK$20.2 billion in the same three months of 2019, according to property agency CBRE.