China Resources Land, a giant state-run real estate firm, became the mainland’s latest developer to go asset light last week when the Beijing-based company sold the hotel portion of a Shanghai development to Stanley Ho’s Shun Tak Holdings for RMB 700 million ($113 million).
The eight-storey hotel is part of Shanghai MixC, a mixed-use commercial real estate project being developed by China Resources under its MixC brand, and signals that the old school state-owned enterprise may be joining developers such as Vanke and Wanda in pursuing an asset light strategy in the face of the country’s current property market downturn.
Hotel Part of Giant Project in Southern Shanghai
According to an announcement to the Hong Kong stock exchange dated April 9th, Shun Tak subsidiary Host Wise signed a framework agreement last week to purchase the hotel portion of Shanghai MixC from China Resources Land.
Shanghai MixC is still in the planning stages, but the approved design calls for a 530,000 square metre complex in southern Shanghai’s Minhang district. The project will include a 240,000 square metre high-end shopping mall, 11 office buildings and a museum, in addition to the 478 room hotel.
Shun Tak, which owns and runs some of the longest-standing casinos in Macau, plans to operate the 29,000 square metre hotel through its hotel management subsidiary, Artyzen Hospitality Group. The company is also said to currently be developing hotels in Beijing, Taipei and Hengqin island near Zhuhai.
China Resources Joins Asset Light Crowd
By selling off, rather than self-developing and operating, a major component of its Shanghai project, China Resources and MixC are following a path to asset light real estate development that is quickly becoming popular among China’s major property firms.
Shenzhen-based MixC already operates malls in cities such as Chengdu, Hangzhou, and Chongqing, as well as in its home town.
Already such major developers as China Vanke have chosen to partner with other investors, or sell off portions of their projects to other developers as financing becomes harder to obtain and smart real estate companies strive to focus on their projects and sectors that will bring high returns without tying up increasingly scarce capital.
Vanke took this route in September last year when it sold nine of its mall projects to US private equity firm Carlyle while they were still in the planning stage for a reported RMB 6 billion to RMB 10 billion ($977 million to $1.62 billion).
Wanda took on RMB 24 billion ($3.86 billion) from four investors in January this year to fund the development of 20 new shopping malls in China.
A recently released report from Citi Research found that mainland developers who have gone asset light and focused on largers cities have significantly outperformed their peers still pursuing capital intensive projects in smaller communities.