After leasing out its most recent Singapore value-add project to Alibaba and its Lazada unit, real estate investment firm Chelsfield Asia is on the lookout for distressed assets in its Hong Kong home base as it gears up for more deals in the region.
Chelsfield Asia chief executive Nick Loup told Mingtiandi that Hong Kong stands out among the fund manager’s top targets in APAC thanks to a growing crop of discounted properties that can be purchased for value-add projects, especially in the hospitality sector.
“We are seeing elements of distress for obvious reasons in Hong Kong and it’s very rare. I have been in Hong Kong since 1993 and you have these cyclical adjustments, (but) what you’re seeing now are very rare,” Loup said in an interview earlier this month. “I think it’s a good time to be looking opportunistically at Hong Kong.
Chelsfield’s interest in Hong Kong hospitality assets follows a string of hotel acquisitions in the city over the last six months by institutional investors including Hines, PGIM Real Estate and Weave Living, with a nearly 50 percent decline in all investment transactions during the first quarter and continuing restrictions on international travel piling pressure on asset owners.
Need for Speed
Loup pointed to a number of factors as contributing to improved conditions for investors looking at the Hong Kong market, with opportunities available across the market, but particularly in the hospitality segment.
“I think it’s not a sector-specific thing, but talking about sectors, clearly the hotel sector has had a really rough time,” Loup said. “Some of the smaller holders of hotel properties that are not backed by big corporations have actually got to the end of the line now and are starting to dispose of assets. That’s quite an active area at the moment which a number of people are looking at.”
Hines chose the hotel sector for its first direct investment in Hong Kong in November last year when the firm acquired the Butterfly on Prat Hotel in Tsim Sha Tsui for a reported HK$925 million ($118.6 million).
PGIM Real Estate followed up two months later with its HK$1.4 billion purchase of a pair of Hong Kong hotels, including the Travelodge Hotel on Hollywood Road in Central, and Weave Living purchased the Rosedale Hotel in Kowloon for HK$1.37 billion.
That string of deals comes as Hong Kong’s overall real estate market fell off of a cliff during the first quarter with the value of total investments dropping by 46 percent compared to preceding three months to total just HK$11.2 billion, according to a recent report by Colliers.
The agency noted that many investors are choosing to keep their money on the sidelines while waiting for market uncertainties to subside, as a combination of the city’s ongoing struggles to achieve its Covid zero goals and the spectre of rising interest rates boost the fear factor.
Back to Hong Kong
Beyond the hotel sector, Loup said that Chelsfield is also seeing opportunities to pick up discounted retail assets, while acknowledging that the path forward for Hong Kong’s shopping economy remains bumpy.
Even under conditions which may give buyers an edge not seen since the global financial crisis, Loup does not see executing a deal in Hong Kong as a sure thing.
“The big listed (local) companies are very well capitalised, (with) low gearing and have plenty of resources. There is also a weight of cash in the market waiting for opportunities,” Loup said. “While there’s a cyclical opportunity, you have to move very quickly to secure something.”
Should the company make an acquisition in Hong Kong it would bring to an end a four-year hiatus from Asia’s most expensive real estate market since Chelsfield tied up with a joint venture between US fund manager Catterton LVMH and Groupe Arnault in early 2018 to purchase a set of retail units in 9 Queen’s Road in Central for a reported HK$900 million ($115 million).
Shortly before that deal in Hong Kong’s priciest district, Chelsfield had teamed up with local fund manager Pamfleet (now the APAC division of Schroders’ Real Estate) to purchase what is now the Worfu shopping centre in North Point for a reported HK$2 billion.
The London-based company is gearing up for its next value-add play after celebrating the official opening of what is now Lazada One in Singapore last week.
After buying what was then the Manulife Centre in 2019 for S$555.5 million (then $408.8 million) in a 50:50 joint venture with ARA Asset Management, the partners are now marketing that property for a reported S$800 million.
That deal, which received a boost when Alibaba and Lazada signed up for more than half of the space in the building, has encouraged Chesfield to look for more assets in Singapore, while also keeping an eye on other major markets in the region.
“Other than (Singapore), we’re keen to get more exposure in Japan – in Tokyo we’re looking at a variety of opportunities there. In China, we continue to believe in the outlook for logistics so we continue to invest in new logistics there and we’re looking at some mispriced opportunities that are starting to trickle through in the Shanghai (Yangtze River) Delta region,” Loup said.