Hong Kong’s Gale Well Group Marketing $202M Portfolio as Founder Calls for a Time Out

Hong Kong-based property investment firm Gale Well Group in the last two months has put up for sale a set of properties worth around a combined HK$1.6 billion ($202 million), as the privately held company’s founder declares plans to take a one-year hiatus from the city’s slumping property market.

Gale Well last week began marketing a 98-room boutique hotel at 39 Morrison Hill Road in Causeway Bay and the 39th floor in Tower 2 of the Lippo Centre office complex in Admiralty. In September, the company had put up for sale the 35th floor of the West Tower of the Shun Tak Centre commercial building in Sheung Wan.

Founder Jacinto Tong Man-Leung announced on Facebook last week that he will take a year off amid too much “noise” in the market, predicting that commercial property values in Hong Kong could rise or fall by as much as 10 percent next year in the face of changing conditions.

“Recently, many people have been asking about the property market’s performance next year, and the safest and most common response is stable,” Tong said in a separate Facebook post last week. “The likelihood of this is actually very low. My personal view is that the market will go either up or down next year, but it will not be flat…with everyone expecting interest rate cuts, if the US Federal Reserve doesn’t cut but instead raises rates, a 10 percent decline is definitely possible. Under normal circumstances, the market will go up over 10 percent, but if black swan events occur, there will be a big decline.”

Repaying The Bank

The 26-storey Causeway Bay hotel, currently operating as the 184-bed BeLiving youth hostel, is said to be valued at HK$630 million, representing a price per key of HK$6.4 million. The valuation represents a 28 percent decline from the reported HK$880 million Gale Well paid to acquire the asset in 2016.

Situated a five-minute walk from the Causeway Bay MTR station at the junction of Morrison Hill Road and Leighton Road, the property has a total floor area of 55,238 square feet (5,132 square metres) with rooms starting on the third floor and a cafe on the first floor. The hotel’s room sizes range from 176 square feet to 324 square feet.

Tong disclosed on Facebook that the part of the sale proceeds would be used to repay a HK$200 million bank loan on the property.

“We decided to sell this hotel, and immediately there is schadenfreude, with people saying that we will lose money” Tong said. “There will be profit and loss in business, there is no guaranteed profit. Losses are secondary, the most important thing is to avoid negative equity. This hotel can be sold for around HK$600 million, we only owe the bank HK$200 million, so we can get back HK$300 million. The loan-to-value ratio is very safe, showing that we pay very close attention to leverage ratio. Many people wouldn’t sell it, but we’ve collected rent on it for 10 years…to sell or not to sell doesn’t make a difference.”

Gale Well is marketing the hotel as JLL in a report last month forecast $500 million in Hong Kong hotel transactions this year, representing a 35 percent decline from 2023.

Strata Sales

Over in Admiralty, Gale Well is reported to be shopping the 12,158 square foot floor in the Lippo Centre at an asking price of HK$277 million, or HK$22,783 per square foot. The company reportedly paid HK$131 million for the strata-titled asset in 2007. The property is the highest floor available in the 41-storey tower, with Indonesia’s Lippo Group holding the top two levels for self-use.

Units in the lower zone of the same tower traded last month at HK$12,406 per square foot and HK$13,300 per square foot, representing 14-year low valuations, according to local media accounts. The building’s monthly rent averaged around HK$40 per square foot in June, which is down 33 percent from its peak and represents a return to 2009 levels.

Gale Well is also asking HK$663 million (HK$29,985 per square foot) for the Shun Tak Centre property, which includes the 22,111 square foot floor along with a pair of car parking spaces. Tong revealed on Facebook that he paid HK$110 million for the asset in 2004.

An entity linked to local investor David “King of Cassettes” Chan Ping-Chi last December sold a unit in the same tower at 168-200 Connaught Road Central for just under HK$31,000 per square foot, representing an 18 percent depreciation from the HK$38,000 per square foot price the investor paid to acquire the unit in 2019.

Savills is sole agent for the Causeway Bay hotel and the Shun Tak Centre floor, while Centaline is managing the sale of the Lippo Centre asset.

Citywide office vacancy in Hong Kong continued to hover near record highs at an average of 16.8 percent in the third quarter, while rents have declined 4.7 percent from the beginning of the year through 30 September, according to CBRE.

Capital values for grade A offices in Hong Kong have plummeted 41.6 percent from their 2019 peaks through 30 June, according to JLL.