Hong Kong-listed Rykadan Capital has taken a major step towards developing a 30-storey commercial tower in the city’s Wanchai district after buying up nearly 90 percent of an aging building on Jaffe Road two MTR stations east of Central.
The real estate firm operated by investment manager William Chan has applied for a compulsory sale of the Jaffe Mansion in Wan Chai after having the building valued at HK$315 million ($40.4 million), according to a report in the Hong Kong Economic Times. With the site already zoned for commercial use, development approvals are considered likely to allow construction of up to 30 floors on the site of what is now an eight-storey building.
Rykadan’s planned Wanchai takeover comes as part of a wave of compulsory sales in the city as soaring values for property in Hong Kong entice more developers to undertake an acquisition process that can require a decade of incremental purchases to secure a site.
Spending HK$250 Mil to Force Compulsory Sale
According to local media reports, Rykadan spent HK$250 million between February and April this year acquiring 41 of the 42 homes in the property at 216 to 220 Jaffe Road, with each of the units in the upper floors of the building costing the investor from HK$5.95 million to HK$6.38 million. The private equity firm now is said to own 88 percent of the space in the 53-year-old building, well above the 80 percent ownership threshold required to force a tender of the remaining units.
The shops in the ground floor of the Jaffe Mansion are valued at around HK$34.52 million to HK$39.71 million, but Rykadan is said to have secured only one of the four retail units at street level before applying to the city’s Lands Tribunal for the compulsory sale. At the valuation of HK$ 315 million for the project, Rykadan would need to pay around HK$6,437 per square foot to acquire the remaining space in the building.
Should the compulsory sale application be approved, Rykadan is likely to build a 30-storey commercial tower on the site which could yield a gross floor area of up to 49,000 square feet (4,552 square metres), according to sources cited in the Economic Times account. Rykadan declined to respond to inquiries from Mingtiandi regarding the potential transaction before the time of publication.
The Jaffe Mansion is located adjacent to the Novotel Century Hong Kong in Wanchai and less than one kilometre east of where Swire Properties achieved its own compulsory sale of a property on Queen’s Road just under one year ago.
Compulsory Sales Catch on in Hong Kong
The Jaffe Road acquisition comes one year after Rykadan Capital leveraged Hong Kong’s Compulsory Sale for Redevelopment rule in acquiring an aging 15-storey industrial building situated at 23 Wong Chuk Hang Road near the South Island MTR line for HK$1.48 billion after the structure had approved for commercial development in 2015.
Statistics from Hong Kong’s Lands Tribunal show that there were 23 compulsory sale applications in the first nine months of 2018, an increase of 60 percent over the level in 2016, as developers continue to step up competition for sites in Asia’s most expensive real estate market.
Henderson Land, one of Hong Kong’s biggest listed developers and part-owner of the International Finance Centre in Central, applied for six compulsory sales from July to September of this year. Mid-sized investors including Hong Kong “Shop King” Tang Shing-bor have also been active in the compulsory sale game and tycoon Edwin Leong’s Tai Hung Fai Enterprise in April used the process to consolidate a block of properties in Sai Ying Pun after spending over HK$1.5 billion ($191 million) to acquire six adjoining sites in the western Hong Kong neighborhood over the past four years.
Individuals connected to blue-chip developer Wheelock made the biggest compulsory sale deal of this year when they applied to take over the nine-storey Ventris Court condo tower in Happy Valley after spending around HK$2 billion acquiring units in the property.
In addition to its Wanchai deal last year, during February of 2018 Swire Properties spent an estimated HK$2.93 billion to acquire space needed for a compulsory sale in the Wah Ha Factory Building in Quarry Bay and another HK$2.82 billion to pick up pieces of the Zung Fu Industrial Building for a similar deal.
Both properties are located near the developer’s grade A One Island East office tower near the Taikoo MTR station.