Gaw Capital Bets on Alibaba in Hangzhou Office Acquisition

Gaw Capital Partners is cozying up to Alibaba for its latest mainland China property acquisition as the private equity firm led by Goodwin Gaw takes aim at the country’s rising tech and e-commerce industries.

The Hong Kong-based investment manager, which raised $2.2 billion for its latest opportunistic fund just five months ago, said it completed the acquisition through a separate account of a 46-storey grade A office building anchored by Alibaba in the e-commerce giant’s hometown. Gaw did not disclose the amount paid for the acquisition.

“For this project, we were able to acquire a high spec building in great location, with a lot of potential,” Humbert Pang, Gaw Capital’s managing principal and head of China told Mingtiandi, pointing to the tower’s location near Alibaba’s corporate headquarters.

Gaw acquired the building after more than 25 percent of it had already been pre-leased to Alibaba’s cloud computing division in a deal which marked the single largest office rental agreement in Hangzhou history.

“Alicloud just moved in, and the Xixi area has created a cluster of tech companies, including some domestic tech unicorns which are also the target tenants of our project,” Pang added.

Buying into a Tech Ecosystem

Tower 6 of the Euro America Financial City (EFC) is just a couple of metro stops away from Alibaba’s Xixi campus in Hangzhou’s Xihu district, where China’s largest e-commerce firm houses a quarter of its more than 101,000 employees across a network of six campuses.

Other tech startups such as ByteDance, Vivo and Oppo have also set up shop in the EFC, as corporate subsidies and housing allowances for new tech talent offered by the local government have fostered the development of online business in the city.

Gaw is acquiring the Foster + Partners-designed skyscraper from local developer Jiangong Real Estate, which built the 96,894 square metre (1 million square foot) project as part of its 1 million square metre Euro America Financial City mixed-use project.

Pre-certified as LEED Gold under the US Green Building Council system, Jiangong completed the 220-metre-tall tower in the fourth quarter of 2019 and Alicloud moved in during April — soon after China had lifted restrictions on office work which had been put in place during the COVID-19 lockdown.

Asking rentals in the building are said to be RMB 4 ($0.57) to RMB 5 per square metre per day, providing Gaw with an initial yield of around 4.5 to 5.5 percent.

In explaining its rationale for the deal, the investment manager also stressed the connectivity advantages that the project enjoys, thanks to its proximity to Hangzhou’s second high speed rail terminal. Alibaba’s global headquarters in Hangzhou’s Binjiang district is a 45-minute drive away.

For Gaw Capital which launched its own data centre investment venture in November of last year, the property’s top tenant may also have been a draw.

“I am particularly pleased to see a substantial portion of space has been pre-leased to AliCloud, one of the top and fastest growing cloud service providers in China and Asia,” Gaw Capital’s Pang said.

Riding the E-commerce Wave

Gaw has made its Hangzhou acquisition — its first purchase in the capital of Zhejiang province — just two weeks after the city’s largest business announced record annual sales, despite the coronavirus pandemic, for the financial year ending 31 March 2020. Alibaba’s revenue for the financial year increased 35 percent to RMB 509.7 billion ($72 billion) from the preceding 12 months.

Another Hangzhou-based e-commerce firm, Pinduoduo, also saw its sales spike during the pandemic. Its revenue hit RMB 6.5 billion in the first quarter of the year, up 44 percent from the same period in 2019.

“Gaw Capital remains positive on quality assets enjoying the upside generated from the flourishing development of the new economy, despite the global economic slowdown and the COVID-19 pandemic lockdowns,” Pang said.

Hangzhou’s Space Surge

The Hangzhou government’s efforts to promote the city as a hub of tech and commerce have attracted commercial developers to the with over 800,000 square metres of fresh office supply projected to hit the market over the coming six months, according to CBRE’s latest quarterly report.

The property consultancy said the new supply will put downward pressure on office rents, which averaged RMB 119.3 per square metre per month during the first quarter. That figure was unchanged from the previous three months.

The surge in new space is also expected to push up vacancy from its first quarter level of 18.4 percent, CBRE said.