Warburg Pincus-backed investment manager KaiLong Group has sold an eight-storey office building in Shanghai’s Zhangjiang Hi-Tech Park, achieving a successful exit after picking up the property over three years ago, the company announced.
Although the buyer and financial terms were undisclosed, the new owner of the KaiLong Info Building is believed to be mainland private equity firm Hony Capital, according to market sources that spoke with Mingtiandi.
Hony Capital is understood to have paid approximately RMB 30,000 ($4,611) per square metre for the property, which is cited as having a total gross floor area of 35,866 square metres. The transaction reportedly closed in December.
KaiLong Chalks Up Successful Exit
KaiLong bought the property in the fourth quarter of 2014 via its first US dollar investment vehicle, the USD Fund I. At the time, the building was anchored by Indian outsourcing firm Infosys. KaiLong’s asset management team upgraded the building last year, after Infosys moved out, and pre-leased the 35,866 square metre property to 47 percent occupancy before the work was completed.
Following asset enhancement work, the building within the core area of Zhangjiang Hi-Tech Park in Shanghai’s Pudong district is positioned for research and development as well as office use. Among the major tenants of the property is Fortune 500 tech manufacturer Flex Ltd (formerly Flextronics), which has set up an innovation centre in the facility adjacent to the Zhangjiang tram.
KaiLong reports a 30 percent rental premium on the asset after spending four percent of the acquisition cost on capital expenditure. “We have provided another timely exit with good return and will continue exploring such opportunities to maximize the return for our investors,” commented KaiLong founder and chairman Hei Ming Cheng in a statement.
Building a Value-Added Track Record
The sale marks Kailong’s second exit under its USD Fund I, following the disposal of a hotel-to-office conversion project on Shanghai’s Yunnan Road in late 2016. KaiLong had bought the 12-storey building, then a run-down hotel, just over 18 months prior, upgraded and renovated it on a tight timetable, and leased out 10,0000 square metres to co-working operator WeWork.
The value-added real estate investment firm was said to have earned more than RMB 500 million ($74 million) by flipping the 11,000 square metre property to a fund controlled by Hong Kong-listed Tianli Holdings. That exit allowed KaiLong to recycle the capital and invest a total of $256 million into eight projects, up from the $238 million that KaiLong initially raised for USD Fund I in May 2015.
Earlier this month, KaiLong exited its two outbound investment funds, which were invested in a portfolio of four serviced office assets in the City of London spanning 160,000 square feet. KaiLong had set up Outbound Investment Fund I and II in 2015 and 2016, respectively, for the British acquisition. The company said the assets were fully leased out and stabilised after the completion of refurbishment work, and the exit generated a net internal rate of return of around 20 percent for investors.
Founded in 2004, KaiLong has raised five RMB-denominated private equity real estate funds, totalling RMB 2.8 billion, and has invested a total of over $2.7 billion in 47 real estate projects, 24 of which have been exited. US private equity giant Warburg Pincus bought a 40 percent stake in the firm through its majority-owned subsidiary, D&J Industrial Property (China) Investment Co in 2015.