CalPERS-Backed Fund Sells Office Tower Near Shanghai’s Xintiandi at 43% Off

One of Shanghai’s most-traded office buildings has changed hands again, with a fund managed by industrial specialist ESR parting with the prime office tower next to the Xintiandi entertainment complex at a discount of more than 40 percent from its 2015 acquisition prices, as office property values in China’s commercial capital continue to slide.

The fund, which ESR inherited through its buyout of Singapore’s ARA Asset Management in 2022, last month offloaded the Platinum on Huangpu district’s Taicang Road for approximately RMB 1.62 billion ($233 million), according to market sources who spoke with Mingtiandi. 

With the California Public Employees’ Retirement System (CalPERS), a primary backer of the investment vehicle, said to be seeking to cash out, the ESR fund sold the prime office project for around 43.2 percent less than the RMB 2.85 billion it paid to acquire the Platinum in 2015, according to agency data. 

The deal, which took place around 10 months after ESR had put the property on the market at an asking price of RMB 2.3 billion is the latest example of a foreign fund manager selling a Shanghai commercial property at a loss, with the private Shenzhen developer and investor Jing Fa Industrial Group having acquired the asset, the sources confirmed to Mingtiandi. 

Bargain Buy

Situated at 233 Taicang Road – about a five-minute walk from the South Huangpi Road metro station – the Platinum comprises 20 storeys above ground and three basement parking levels. 

With the tower spanning 33,954 square metres (365,478 square feet) of lettable area, the sale price is equivalent to RMB 47,712 per square metre, with the 2005-vintage property having been refurbished in 2015.

Retail space on the building’s ground floor is leased to Standard Chartered Bank, with the remaining levels providing office space for tenants including management consulting firm McKinsey & Company which anchors the building with a lease of around five floors.

Jing Fa Industrial, which was led by Li Hanfa until the company founder recently turned over management to his children, is taking over the asset at around a 30 percent discount from ESR’s asking price last year. Jing Fa has developed several commercial and residential projects in Shenzhen, including the 33-storey  Huan Qiao mixed-use tower in Shenzhen’s Nanshan district.

ESR and CalPERS had not responded to Mingtiandi’s requests for comments on the deal by the time of publication.

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 nearly any other top-grade office tower in Shanghai.

Having already traded five times in its twenty-year history, including the latest sale, 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, nearly completed, to a fund managed by Australian fund manager Macquarie Global Property Advisors 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 sold the tower to a fund managed by German 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.

Market Challenges

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 December, according to Cushman & Wakefield, with rents for that space having fallen 9.8 percent from the same point last year.

With grade A office rents in Shanghai having fallen for 15 straight quarters, the prospects for building owners are further dimmed by a glut of new space entering the market. 

Approximately 4.2 million square metres of Shanghai’s grade A office space lay vacant at the end of December, with completions of new buildings set to add about 1.2 million square metres more this year. Cushman & Wakefield expects Shanghai grade A office rents to continue to decline in 2026 with the market facing a rush of new supply.

As foreign investors have grown more cautious about China’s commercial real estate, domestic buyers have become the primary driving force in the market.

Last year, an investment consortium including Gaw Capital Partners, PAG and the merchant banking arm of Goldman Sachs disposed of Ciro’s Plaza near Shanghai’s People Square to state-owned conglomerate Xiangyu Group for RMB 2.1 billion, according to agency data. That 24-year-old office and retail tower fetched the equivalent of RMB 35,000 per square metre, with the deal closing last month.

In July, Warburg Pincus-backed fund manager Kailong Group sold the Mix 6 office and retail block in the Laoximen area for just under RMB 500 million or about RMB 28,000 per square metre to Zhejiang businessman Jin Jiansheng, Mingtiandi was told.