CalPERS-Backed Fund Marketing Office Tower Near Shanghai’s Xintiandi for $316M

One of Shanghai’s most traded office buildings is on the market for 20 percent below its 2015 acquisition price as landlords in China’s commercial capital continue to face challenges from ebbing business confidence and falling rents.

A fund managed by Hong Kong-listed ESR is marketing the Platinum, an office block next to the Xintiandi entertainment complex in central Shanghai’s Huangpu district for RMB 2.3 billion ($315.6 million), according to multiple market sources, as the California Public Employees’ Retirement System (CalPERS), a primary backer of the fund, looks to exit the investment.

ESR, which declined to comment on the reported marketing effort, is said to have recently engaged property consultancies JLL and Savills to find a buyer for the 20-storey tower on Taicang Road, with no substantive discussions known to have taken place to date. News of the marketing effort was first reported by Bloomberg.

With grade A office rents in Shanghai having fallen for 12 straight quarters, the asking price for the property in one of city’s priciest locations is 20 percent below the RMB 2.85 billion which the fund, then managed by Singapore’s ARA Asset Management, paid to acquire the Platinum in 2015, according to agency data. ESR acquired ARA for $5.2 billion in a deal which closed in 2022.

Market Challenges

Capital markets brokers who spoke with Mingtiandi had varied perspectives on prospects for the sale of the Platinum, as potential investors in China’s commercial real estate markets face a broad array of choices with many funds eager to find buyers for office properties.

With the Platinum spanning 33,969 square metres (365,639 square feet) of gross floor area, the asking price is equivalent to RMB 67,709 per square metre, with the 2006-vintage property having undergone refurbishment in 2015.

Experts described the RMB 2.3 billion asking price as “aggressive” given current market conditions, with one veteran broker estimating RMB 1.8 billion to RMB 2 billion as a price range where the asset might find a buyer.

While trades of commercial buildings have become rare occurrences in Shanghai in recent years, SGX-listed OUE REIT in December agreed to sell Lippo Plaza, four blocks away from the Platinum on Huaihai Road, for RMB 1.92 billion. That 30-year-old office and retail tower fetched the equivalent of RMB 40,000 per square metre.

Less centrally located properties have faced greater challenges with Standard Chartered having sold a pair of office blocks in Shanghai’s Putuo district earlier this year after fund management giant BlackRock defaulted on loans on the assets. Beijing-based DCL Investment picked up the office buildings for approximately RMB 695 million, or RMB 25,000 per square metre.

Arc of the Market

Standing at one of Shanghai’s most desirable locations and valued at a scale which makes it accessible to a broad range of investors, the Platinum has changed hands more often than any other top-grade office tower  in Shanghai.

Having already traded four times in its twenty-year history, the Platinum plots the arc of Shanghai’s commercial property market, with one investor having more than doubled its money on the building in under two years during Shanghai’s boom era.

Developed by CapitaLand, the Singaporean property giant sold the building to a fund managed by Australian fund manager MGPA in early 2005 for the equivalent of RMB 712.5 million.

By late 2006, with Shanghai perceived as an emerging global financial centre and the cafes and pubs of Xintiandi overflowing with talks of trades and investments, the MGPA vehicle was able to sell the tower to a fund managed by Germany investment firm SEB for RMB 1.95 billion after completing and leasing out the property.

In early 2010, with China’s economy still recovering from the global financial crisis, SEB sold the Platinum to a joint venture between CSI Properties and Chinese Estates for RMB 1.85 billion, before the Hong Kong-listed partners sold the building to the ARA fund in September 2015 as confidence in China’s commercial market peaked.

With developers having continued to invest in new buildings in Shanghai through the pandemic, nearly a quarter of the city’s grade A office space stood empty at the end of March, according to Cushman & Wakefield, with rents for that space having falling 9.1 percent from the same point last year.

The prospects for building owners are further dimmed by a glut of new space entering the market. Approximately 4 million square metres of Shanghai’s grade A office space lay vacant at the end of March, with completions of new buildings set to add more than million square metres more this year.

Facing this rush of new supply, Cushman & Wakefield expects Shanghai grade A office rents to continue to decline in 2025.

Note: This story has been updated to show that the Platinum was completed and leased by the time that MGPA sold the building in 2006.