Brookfield is expanding its multi-family projects into China
Brookfield has leveraged the potential of China’s rental housing market and the financial distress of some of the country’s largest developers to acquire a serviced apartment project in Shanghai’s Yangpu District for RMB 1.26 billion ($180 million) as the first property in a new line of multi-family projects.
“Our Jiayu project is the first to launch with our new ‘Blinq’ brand which will focus on mid-to-high-end projects,” Stuart Mercier, Brookfield managing partner and head of Asia real estate, told Mingtiandi. The Canadian fund manager is acquiring the 42,000 square metre (452,084 square foot) complex from debt-laden Chinese developers Guangzhou R&F Group and KWG Group Holdings.
With more than 70,000 multi-family units and over $22 billion in assets under management within the sector globally, Brookfield pointed to the non-resident population of over 10 million people in China’s commercial capital as a driving force for the rental market. “Shanghai is a destination for young talent and has high barriers to home ownership, which drives rental demand,” said Mercier.
Brookfield had revealed the acquisition over its official WeChat channel last month, and confirmed the seller identities on Thursday after JLL announced that it had brokered the disposal on behalf of Guangzhou R&F and KWG. Sources familiar with the transaction confirmed to Mingtiandi that the asset had changed hands at approximately RMB 30,000 per square metre, putting the consideration for the transaction at around RMB 1.26 billion.
Neither Guangzhou R&F nor KWG Group has made any disclosure regarding the asset sale.
High-End Community
Jointly developed by R&F and KWG Group and previously operated by R&F Shanghai, the Jiayu project is located in Xinjiangwan, an area neighbouring a cluster of universities and high tech firm campuses such as Tishman Speyer’s The Springs in Yangpu district’s Wujiaochang area, north of the city centre.
Stuart Mercier of Brookfield Asset Management
The project sold includes three apartment buildings that are planned to provide around 560 apartments, according to Brookfield’s earlier statement on WeChat. Upon completion of the transaction, the property will be renamed Shanghai Wujiaochang Blinq Executive Apartment (Blinq Wujiaochang), Brookfield said.
Blinq Wujiaochang’s first 100 rental apartments were opened this month, and the remaining units will be made available in the fourth quarter of this year and the second quarter of 2023, according to a press release by JLL.
The asset previously belonged to the commercial element of a multi-use joint venture between R&F and KWG named Amazing Bay, according to a report by Guangzhou’s Times Media. The two developers had purchased a 70 percent stake in the site for Amazing Bay from US developer and fund manager Hines for $353.5 million in 2010 and another 30 percent from state-owned Shanghai Chengtou Cityland (Group) Co Ltd for 1 billion yuan ($142 million) in 2011, the report said.
Struggling Chinese Developers
Guangzhou R&F, China’s 40th largest developer by contracted sales attributed to shareholders in the first half, and KWG Group, ranked 45th by the same metric, have both been struggling to pay down debt as their revenues slide during China’s housing downturn.
The project is located near Yangpu’s Wujiaochang area
In December, R&F sold its remaining 30 percent stake in its Guangzhou International Airport R&F Integrated Logistics Park to Blackstone for RMB 3.4 billion, after closing on its $1.1 billion sale of 70 percent of the distribution centre to the US fund manager in January.
In May, R&F sold its 50 percent stake in Thames City, a London joint venture with fellow Chinese developer CC Land, to the latter firm’s chairman for HK$2.66 billion, and booked a loss of HK$1.84 billion on that disposal.
Earlier this month, the developer sold 100 percent of its stake in its Wanda Realm Beijing hotel to a unit of Beijing Pengrui Real Estate for RMB 550 million ($79 million).
KWG has also been conducting a fire sale to bolster its finances. In the beginning of the year, it established a key account sales team to promote en-bloc sales of office buildings in some non-core areas of Guangzhou, Beijing, and Shanghai, the developer said in its interim report.
In July, KWG sold a 50 percent stake in a residential project in Hong Kong’s Kai Tak area to its partner Longfor Group for HK$1.3 billion.
These sales have coincided with both firms having recently secured deals to restructure their offshore debt.
With JP Morgan as the agent for both firms’ debt restructuring, R&F in July pushed out the deadline for 10 offshore bonds totaling $5.1 billion by three to four years while KWG this past week secured investor consent to swap $1.6 billion in near-term notes for new debt on longer maturities.
Renting Comes to Town
The value of Brookfield’s Yangpu prize comes as a result of property prices in China’s major cities becoming some of the least affordable in the world, with renting gradually gaining favour with young professionals.
By raw count, rental housing projects sector accounted for 15 percent of new real estate developments in China during the second quarter, up from 7.6 percent in 2021, according to JLL. With China’s recently established affordable housing REITs providing a potential exit channel for investors in the sector.
“China continues to introduce favourable policies for the rental housing sector. We have seen a strong interest from more diversified investors in this market. As housing REITs are being ushered in, the rental housing market will become more active in the future,” said Sun Ling, head of capital markets for JLL East China, in a statement Thursday.
Three REITs with public rental housing projects in Xiamen, Shenzhen, and Beijing as their underlying assets rose to the first trading day’s limit of 30 percent on their debut in China last month. The three listed trusts were each more than 100 times oversubscribed among institutional investors and raised a combined RMB 3.8 billion based on Reuters’ calculations.
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