Gaw, Quadreal Buy Shanghai’s Ocean Towers From ARA for RMB 3B

Gaw Capital Partners announced today that the private equity firm, through a fund under its management and in league with partners including British Columbia’s QuadReal Property Group, have acquired the Ocean Towers office building in Shanghai.

The consortium purchased the grade A office building in the city’s Huangpu district from ARA Asset Management’s ARA Asia Dragon Fund II for approximately RMB 3 billion ($432 million), according to sources familiar with the transaction who spoke with Mingtiandi on condition of anonymity.

The sale of the 50,219 square metre (540,552 square foot) tower marks the second time this month that Singapore-based ARA has disposed of a mainland commercial asset as it completes the divestment of one of its mainland funds, while Gaw returns to a familiar section of town and a tested value-add approach for its latest Shanghai acquisition.

Buying Back into Huangpu District

Gaw Capital’s new 25-storey prize was purchased at a rate of RMB 60,000 per square metre, according to market sources who spoke with Mingtiandi. The 2001-vintage tower is located along the Yan’an Lu elevated road and, from its upper floors, enjoys views of Pudong and the city’s historic Bund area, which is only a few blocks to the east.

“Gaw Capital and our partners are confident about Shanghai’s property market, which has continued on an upward trajectory despite the uncertain external economic environment,” Humbert Pang, managing principal and head of China for Gaw Capital Partners said in a statement. “Shanghai remains China’s top gateway city for both multinational corporations and domestic companies, with Shanghai’s CBD Grade A offices continuing to demonstrate a strong leasing momentum.”

The property, which is less than a kilometre east of People’s Square, is within walking distance of stations serving Shanghai’s metro lines one, two and eight and will have access to metro line 14 when that begins service in 2020.

Value-Add Opportunity

In its statement, Gaw Capital highlighted the potential for adding value to Ocean Towers by boosting occupancy and deriving advertising income from signage.

The building is said to be around 80 percent occupied at present, with passing rents averaging over RMB 8 per square metre per day. Gaw Capital’s Pang expressed to Mingtiandi that the purchase of Ocean Towers represented an opportunity to acquire a grade A building in a core area of Shanghai which provided an attractive investment yield.

The potential for the asset should be apparent to Gaw, after the company, on behalf of an earlier fund, purchased the nearby Cross Tower in 2013 for approximately RMB 1.67 billion. The investment managers resold that building in December of last year for RMB 2.7 billion, reaping a capital gain of RMB 1 billion in less than five years.

“We hope to leverage our experience in redesign and re-positioning to enhance asset value and attract new tenants. In addition, we will reposition and upgrade the tenant mix to add significant, strategic value to the Grade A building,” Pang said with regard to this latest acquisition.

ARA’s Second Mainland Asset in One Week

“ARA Asia Dragon Fund II (“ADF II”), one of the funds under the ARA Private Funds division, completed the sale of Ocean Towers in Shanghai today,” ARA’s Assistant Group CEO and chief executive of its private fund division, Ng Beng Tiong informed Mingtiandi by email. “The divestment demonstrates our strength as an investor-operator with complete investment life cycle expertise.”

Ng added that, ARA which had purchased Ocean Towers from a fund managed by Singapore’s Ascendas (now Ascendas-Singbridge) in January 2013 for a reported RMB 1.9 billion, had been able to use its expertise in asset management to resell the property “amidst strong buyer interest.”

“The sale of this asset, in addition to our recent divestment of Beijing Jingtong Roosevelt Plaza which is underway as we speak, marks the successful close of the fund,” Ng said, referring to the ARA Asia Dragon Fund II. The Ocean Towers sale was announced just three days after the real estate investment manager revealed the RMB 2.56 billion sale of a Beijing mall to Hong Kong’s Link REIT.

Cushman & Wakefield’s Shanghai-based investment services team is said to have represented ARA in the disposal.

Quadreal in Second Major Investment This Month

For observers of Asia’s real estate investment markets, the trade for Ocean Towers also offers the latest appearance of Vancouver-based QuadReal Property Group in a major investment in the region.

While Quadreal’s stake in the RMB 3 billion deal has not yet been publicly revealed, the firm which manages the real estate assets of British Columbia’s bcIMc public pension manager earlier this month revealed a €2 billion ($2.29 billion) joint venture with the Canadian Public Pension Investment Board (CPPIB) and Global Logistic Properties to invest in European distribution facilities.

Quadreal also joined GLP’s first two European funds when those were established in 2017, just a few months before the Vancouver-based institution formalised its presence in Asia by hiring former ADIA executive Peter Kim as its managing director for Asia.