Finding opportunities for value-add real estate strategies in Hong Kong requires in-depth knowledge of the local community in one of the world’s most expensive cities, according to top developers and fund managers speaking at a panel this week.
“The way we look at where we invest, we focus on what we call the good neighbourhoods, which is where we see very strong structural tailwinds, where you have the ability to generate cash flow growth that’s growing in excess of inflation,” Pak Man Yuen, managing director at Blackstone the audience at the Mingtiandi Hong Kong Focus Forum on Tuesday.
Yuen said having an deep understanding of the needs of the local community and choosing a target market with robust fundamentals are keys to a successful value-add play.
The Blackstone managing director was appearing alongside top executives from Weave Living, Lofter Group and Fairland Holdings in front of the audience of 200 industry executives.
Mini-Sheds and Beds
“We’re seeing the strongest fundamentals in Hong Kong in the industrial space and hospitality (for value-add plays),” Yuen said at the event, which was sponsored by Yardi. Blackstone has made its Storefriendly self-storage JV a major focus of its work in the city, acquiring a number of industrial buildings and converting them into self-storage facilities.
The ability to find properties suitable for upgrade has enabled local urban redevelopment specialist Lofter Group to establish partnerships with global players like Schroders, BentallGreenOak and SC Capital, according to Carol Chow, founder and chairperson of the company.
“You have to keep very close to the market… That’s why many global funds or global investment firms, when they work on development strategies in a particular city, especially Hong Kong where the competition is very keen, they will work with local partners to execute and to play the most suitable development strategies.”
Lofter currently has eight ongoing development commercial and residential project in major urban areas in Hong Kong. In March, the local builder teamed up with Singapore-based SC Capital to secure full ownership of a redevelopment site on Ap Lei Chau Island via a compulsory auction.
Liz Chu, chief operating officer for Warburg Pincus-backed rental housing platform Weave Living said there are still opportunities to acquire ageing hospitality assets and convert them into apartments, although it has become more difficult as prices are slowly picking up after the COVID-19 pandemic.
With its tenth location set to open next month at 68 Robinson Road in the Mid-Levels area, Chu said Weave Living has been looking for ways to enhance the neighbourhoods where they invest, as a way to improve the value of their assets and improve the experience for their tenants.
“Ultimately what we’re trying to do is provide customer service, provide a lifestyle (and) not just provide a space for them to live,” told the panel. “Being able to reconfigure spaces and actually utilise the space and optimise the layouts, that is actually something that we would really look into. We look at value adding on something not only just in the property, it actually is the whole neighbourhood where we want to activate the space.”
Chu’s vision of improving neighbourhoods meshes with the approach of Douglas Wu, executive director at local property investor and operator Fairland Holdings.
In the same discussion, Wu pointed to Cheung Sha Wan and To Kwa Wan in Kowloon as two of his favourite for value-add and redevelopment opportunities. He noted how improved connectivity, ongoing private residential developments and urban renewal efforts by Hong Kong’s Urban Renewal Authority are changing the demographics of these areas, attracting a younger population and helping create higher purchasing power.
“We always look at where the URA is investing or where their projects are earmarked for private residential redevelopment or development because that will change the dynamics of the area and bring in younger families,” he said.
Fairland last December completed its transformation of a 13-storey building at 126 Castle Peak Road from an old office building into a new service-oriented lifestyle hub dubbed Spark City Cheung Sha Wan.
Onward to Singapore
At the start of the day, Mingtiandi’s Hong Kong Focus Forum opened with a keynote panel featuring top executives from APG Asset Management, Link REIT, Cushman & Wakefield as well as WeWorld Greater China.
The on-site event held at the Sheraton Hong Kong Hotel & Towers, in the Tsim Sha Tsui business and shopping district, also hosted two separate exclusive interviews with PAG co-founder and chairman Weijian Shan, as well as Ellen Ng, managing director and head of China real estate at Warburg Pincus.
Other panels focused on Hong Kong’s industrial sector and its commercial hubs, as well as investment opportunities in mainland China and Japan.
After successfully debuting the conference in Hong Kong with over 200 attendees, Mingtiandi will return to the Lion City in November for its second Singapore Focus Forum.