Phoenix Property Investors seized the opportunity presented by Hong Kong’s surging real estate market by announcing the sale of a pair of properties in the city this week for a combined $322 million.
The two disposals by the private equity firm headed by financiers Benjamin Lee and Samuel Chu include selling off five floors, supported by additional assets, in an office project in Kowloon East’s emerging business district to a mainland developer for $171 million.
While the Kowloon East deal is said to have been signed this month, Phoenix also took the opportunity this week to send out notice of the sale of a 5,798 square foot (539 square metre) commercial site in Wanchai district which was sold to Hong Kong-listed conglomerate Continental Holdings for HK$1.18 billion ($151.3 million).
The two sales bring the income of Phoenix and its partners from sales of commercial projects in Hong Kong this year to over $397 million, as the city’s world leading office rents have driven competition for office properties in the city. Both disposals are of properties that had been acquired under the $750 million Phoenix Asia Real Estate Investments V, which Phoenix closed on in 2013 and manages on behalf of its partners.
Selling Off Strata Assets in Kowloon East
For its seventh exit from the Phoenix Asia Real Estate Investments V fund, Phoenix announced the sale of floors 41, 43, 45, 47 and 49 in Kerry Properties Enterprise Square III, after buying them from fashion brand Esprit Holdings for HK$918 million in December 2015 under a sale-and-leaseback arrangement. The top level office space, which also includes signage rights and 16 parking spaces, covers 79,800 square feet (7,415 square metres) in the development, which translates into a sale price of approximately HK$16,700 per square metre.
The mainland buyer is purchasing the floors for use as its corporate headquarters in Hong Kong, with floors 41 and 43 having already been turned over to the new owners for their use. The other three floors are leased by a listed company for approximately HK$1.8 million per month, according to market sources who spoke with Mingtiandi. Colliers International and local real estate agency Centaline are understood to have represented Phoenix as joint sole agents for the marketing of the property.
Assembling a Site and Selling a Project
The sale of the Wanchai district project enables Phoenix to realise an early return on a site at 232 Wanchai Road, that it had been developing through a 50-50 joint venture with Hong Kong-listed developer CSI Properties. The investment firm had bought up 49 individual units in the existing building before obtaining possession of the 999-year-leasehold site during the first quarter of 2016, according to a statement.
Phoenix finished demolition of the existing 1964-vintage building on the site after securing approval for construction of a commercial project with a 15 to one plot ratio. In a statement, Phoenix indicated that while it had originally intended to redevelop the site itself, the presence of ready buyers for the unbuilt project created a welcome opportunity for an early exit for the sixth disposal from its fifth fund. The site was sold in mid-July this year, and the finalised transaction was approved by Continental Holdings’ shareholders less than two weeks ago.
Mainland Demand Drives Office Profits in Hong Kong
Demand for prime office space from their cousins north of the Special Administrative Region’s border has created new levels of profit opportunity for investors in Hong Kong commercial real estate as both rental rates and capital values have reached new heights in the city this year.
Just last month a consortium led by mainland oil group China Energy Reserve and Chemicals Group set a new price record for office assets in Hong Kong by purchasing the Center on Queen’s Road from Li Ka-shing’s CK Asset for $5.15 billion at the start of November.
Rentals also scaled to new levels in October when a finance firm set a ten-year high for office rental rates in the city by leasing space in ifc in Central for HK$200 per square foot per month. After rising another five percent in 2017, Hong Kong office rents have now surpassed New York’s to qualify as the world’s highest, according to a recent survey by property consultancy Cushman & Wakefield.
Phoenix already capitalised on Hong Kong’s booming office record earlier this year when it sold the Kwun Tong View project in Kowloon East’s Kai Tak area to a local private investor for $225 million in May of this year.