Goldman Sachs, PAG, Gaw in Talks to Sell Shanghai Property for Less Than Mortgage Balance

Investors including Gaw Capital Partners, PAG and the merchant banking arm of Goldman Sachs are set to dispose of a commercial complex on Shanghai’s famed West Nanjing Road for less than the loan balance owed on the property as the city’s real estate slump continues. 

The financial titans are in advanced discussion to sell Ciro’s Plaza, a combined office and retail asset near Shanghai’s People Square to state-owned conglomerate Xiangyu Group for a price reported to be around RMB 1.8 billion ($251 million), according to market sources who spoke to Mingtiandi, although no deal has yet been finalised.

Should the Xiamen-based SOE acquire the 2001-vintage asset at the reported price, the sellers would be receiving less than the balance of loans owed on Ciro’s Plaza, one of the sources said, with the compensation level under discussion representing a 37 percent discount to what PAG, Goldman Sachs and other consortium members had paid to buy stakes in what was then a Gaw Capital-controlled asset in 2015.  

The sale talks are taking place around a year and a half after the Gaw Capital-led consortium had put the 39-storey tower on the market through a tender process, with other foreign investors having handed Shanghai office properties back to lenders in recent months as valuations fell below loan balances.

Market Slump Continues

Should the transaction take place at the reported price,  Xiangyu Group, which is active in logistics supply chain services, real estate and financial services, would be paying the equivalent of approximately RMB 25,569 per square metre for Ciro’s Plaza, as average office rents in Shanghai’s core office locations having fallen more than 34 percent since their 2018 peak, according to agency data.

With China’s economy still not having recovered from pandemic-related shocks, office landlords have struggled to fill buildings and service loans, with the Ciro’s Plaza consortium having set a reported asking price of RMB 40,000 per square metre when they put the tower on the market in late 2023.

The potential RMB 1.8 billion sale price would represent a markdown of RMB 1.06 billion, equivalent to 37 percent of the valuation, from when PAG, Goldman Sachs and other consortium members acquired their stakes in the asset in 2015.

Located at 388 West Nanjing Road near the boundary separating Shanghai’s Jing’an and Huangpu districts, Ciro’s Plaza is situated within about a 10 minute walk of People’s Square metro station on a site which had been British tycoon Victor Sassoon’s Ciro’s dance hall before 1949.

The current property spans 84,968 square metres (914,584 square feet) of total floor area over 31 storeys of office space situated above an eight storey retail podium.

With part of the property under separate strata-title ownership, the consortium owns 70,397 square metres of total floor area, including 47,597 square metres of office and 22,800 square metres of retail space, according to previous announcements by consultants Savills and Colliers in December 2023.

Gaw Capital, PAG and Savills have declined to comment on the deal discussions.

Falling Occupancy

Having owned a majority stake in Ciro’s Plaza before the 2015 deal which brought PAG and Goldman Sachs into the property’s ownership group, Gaw Capital and affiliated entities retained 30.37 percent ownership of the entity following that transaction, according to a stock exchange filing by Gaw-controlled Pioneer Global Group. 

 

Since the transaction a decade ago, the building’s occupancy has declined, with Pioneer disclosing a 85 percent occupancy rate as of September 2024 and a 77 percent occupancy rate a year earlier, compared to 93 percent at the time that the consortium invested.

The building counts Abbott, NEC, SAP and Sephora among its office tenants, while the retail portion includes F&B, lifestyle, and clothing shops as well as entertainment venues, bank branches and a Maserati showroom.

Shanghai’s declining office market has led to string a marked-down asset sales with Standard Chartered in March disposing of a pair of office blocks in Shanghai’s Putuo district after repossessing them from a BlackRock fund at a price deal representing a more than 42 percent discount from what the US asset management giant had paid to acquire the properties in 2018.

In December, Singapore-listed OUE REIT sold Lippo Plaza on Shanghai’s Huaihai Road for RMB 1.92 billion, which marked a 35 percent discount from a 2018 valuation of the 30-storey office tower.

In October, Carlyle Group agreed to sell The Crest in Shanghai’s Changning district for RMB 826 million, with that deal representing a 49 percent discount in US dollar terms from what the private equity firm had paid to acquire the 31-storey an office tower nearly a decade earlier.