AEW JV Buys Beijing Office Tower From Hopson for RMB 4.5B — Exclusive

A joint venture led by real estate investment manager AEW has purchased a 21-storey office tower in Beijing for a total compensation of RMB 4.5 billion ($654 million), according to sources familiar with the transaction who spoke with Mingtiandi.

AEW joined with Beijing-based private equity investor Hony Capital to purchase the north tower in the Beijing Oriental Culture and Art Center in Dongcheng district from Hong Kong-listed Hopson Development, which announced the sale of the 53,119 square metre asset to the stock exchange on November 30th.

The deal gives AEW and Hony control over a 12-year-old asset just west of the eastern section of the capital’s Second Ring Road, just a 10-minute walk south of the Dongsishitiao station on Beijing’s metro line two.

AEW and Hony Find Value in Central Beijing

AEW and Hony, which is a unit of Beijing’s Legend Holdings, formed an 85/15 joint venture to acquire the property, with Hopson Development disposing of the 2006-vintage tower through the sale of equity in a pair of subsidiaries in return for cash compensation of RMB 1.95 billion.

The price for the asset, which together with a second office tower and a concert hall, forms the Beijing Oriental Culture and Art Center, represented a discount of approximately 3.89 percent, or RMB 7.9 million, compared to a recent valuation of the asset, according to Hopson’s filing to the Hong Kong Stock Exchange.

Sources close to the matter told Mingtiandi that in addition to the cash compensation, AEW took over responsibility for debts of approximately RMB 2.55 billion associated with the property, bringing total compensation on the deal to a total of RMB 4.5 billion and valuing the office asset at the equivalent of RMB 81,000 per square metre.

The deal, which was brokered by Cushman & Wakefield, represents AEW’s first Beijing acquisition for its third Asia Pacific value-added fund, which the private equity firm closed in June with a total commitment of $1.12 billion.

Hopson’s two subsidiaries, Favor Easy Limited and Favor Mega Limited, collectively had owned 97 percent of the asset on 9 Chaoyang North Road. A third owner will also be disposing of its 1.9 percent stake in the same transaction, while Beijing Dongfangwenhua Assets Operation Company will continue to hold a 1.1 percent stake.

AEW Bets on Central Beijing Location

Citywide, Beijing’s grade A office market had a vacancy rate of under eight percent at the end of the third quarter of this year, according to Cushman & Wakefield research, with rents averaging RMB 403 per square metre per month.

While the East Second Ring Road area where AEW’s new asset is located had average rents of RMB 369.6 per square metre per month, the submarket’s vacancy rate was well below the city average at just 6.2 percent according to the brokerage’s analysts.

AEW is said to see opportunities to add value to its new office tower by upgrading common areas of the property and making other improvements to enhance its investment yield.

The company, which along with its affiliates manages over $73 billion in property and securities across North America, Europe and Asia, has said that its Value Investors Asia III fund, which has already assembled a portfolio of assets in Seoul and Sydney, seeks to create value by repositioning, refurbishing and re-leasing commercial real estate.

Prior to this latest deal, the private equity giant was reported to have bagged the Innov Tower, a fully leased office building in Shanghai’s Caohejing High-Tech Park from CapitaLand for $226 million in June 2017.

Hopson Makes Second Attempt to Sell Off Beijing Project

For Hopson, this most recent deal is its second attempt at selling the property in just over a year.

In at the end of September 2017, Hopson announced to the Hong Kong exchange that it had agreed to sell the asset for RMB 1.84 billion in cash compensation. However, that deal eventually fell apart, with Hopson announcing to the exchange on January 12^th that it failed to reach agreement with the purchaser regarding whether initial steps in the agreement had been fulfilled according to the terms, and that the transaction had been terminated.

In its November 30^th statement, the Beijing-based developer clarified that it saw the disposal under the current terms as “an appropriate opportunity to dispose the asset at a reasonable price and that the proceeds can provide funds for the group to capture future investment opportunities and/or as working capital.”

Beijing Commercial Market Heats Up

AEW’s acquisition was sealed just one week before Gaw Capital Partners confirmed that it had sold the Pacific Century Place project in Beijing for approximately RMB 10.5 billion ($1.53 billion) to a fund affiliated with mainland real estate agency Lianjia.

The reported selling price for that asset represented a mark-up of around $548 million over what the private equity firm had paid for the complex in Beijing’s Sanlituan area when it acquired the property on behalf of its Gaw Capital Real Estate Fund IV for $928 million in April of 2014.