Receivers Sell Former Cheung Kei Hong Kong HQ at 62% Off as Banks Take Haircut

Hong Kong Metropolitan University (HKMU) has agreed to buy a Kowloon office building that once served as the Hong Kong headquarters building of defaulted mainland property firm Cheung Kei Group, after the asset lost nearly two thirds of its value over the past two years.

Market sources confirmed to Mingtiandi that HKMU has agreed to buy the East Tower of the One HarbourGate complex in Hung Hom, with the university said to have offered HK$2.65 billion ($341 million) for the asset, according to the Hong Kong Economic Times which earlier reported the sale. The acquisition comes after HKMU, which has been seeking additional campus space, in June said it had bought the Urbanwood Hung Hom hotel, located a 16-minute walk from One HarbourGate, for use as student housing.

“With the rapid development of the University, including the continued increase in the number of students, faculty and staff, the introduction of a wide range of new programmes, and its designation as the first University of Applied Sciences in Hong Kong, Hong Kong Metropolitan University has been actively exploring different ways to provide its students and staff with more and enhanced spaces for learning, teaching and research, including executive training programmes,” a HKMU representative told Mingtiandi.

Formerly known as the Cheung Kei Center, the grade A office block is changing hands at a 62 percent discount from a HK$7 billion valuation of the property in 2022. The complex had been on the block since May of last year after receivers acting on behalf of creditors seized the building in March 2023 from entities controlled by cash-strapped Cheung Kei boss Chen Hongtian.

Second Sale Effort

News of the university’s purchase of the commercial block comes after reports earlier this month indicated that China Mobile had offered as much as HK$3 billion for the building, subject to conditions. The mainland telecom operator’s bid involved installment payment, making HKMU’s lump-sum cash offer more attractive, Bloomberg reported, citing people familiar with the matter. In August, market sources told Mingtiandi that China Telecom and a major Hong Kong-based developer had separately submitted bids for the asset.

At HK$9,498 per square foot, the reported acquisition price for the 279,000 square foot (25,920 square metre) property represents a 41 percent mark-down from the HK$4.5 billion (HK$16,129 per square foot) Chen paid to acquire the then newly completed asset from local developer Wheelock Properties in 2016.

The 17-storey building at 18 Hung Luen Road currently serves as the Hong Kong headquarters of Canadian insurer Sun Life and has 254,000 square feet of office space across 15 floors. The property also features a 26,000 square foot retail podium.

HKMU’s acquisition ends a marketing exercise which launched in July after an earlier tender concluded in August last year without a transaction being consummated. Market sources estimated that the property currently is 40 percent vacant after Cheung Kei left the premises.

Chen is said to have pledged the property in 2019 as collateral on a HK$4.6 billion loan from a consortium of lenders including Hang Seng Bank, which appointed a pair of PricewaterhouseCoopers partners as receivers of the asset in March 2023. Market sources estimated that Cheung Kei’s creditors were still facing an outstanding balance of HK$4.2 billion on that loan.

By 30 June capital values of grade A offices in Hong Kong had plummeted 41.6 percent from their 2019 peaks, with citywide vacancy continuing to hover near record highs at 13.3 percent at the end of October amid weak leasing demand and oversupply, according to JLL.

Wave of Seizures

One HarbourGate East Tower was repossessed around the same time that two of Chen’s luxury residences in Hong Kong were seized by creditors. In early 2023, Bank of East Asia took over the tycoon’s 9,212 square foot mansion at 15 Gough Hill Road in the city’s prestigious Peak area, while Bank of Communications seized Chen’s 5,154 square foot apartment at Swire Properties’ Opus complex in the Mid-Levels.

In August last year, receivers sold the Opus apartment for HK$420 million in a deal pegged at 38 percent below market value and the 15 Gough Hill Road home had yet to find a buyer as of July.

Chen’s financial struggles have also led to his London assets being seized by receivers and put up for sale. Earlier this year, a sale of the 5 Churchill Place office block in the Canary Wharf financial district reportedly collapsed shortly after receivers who had seized the property in May 2023 had lined up a £110 million offer for the former Bear Stearns UK headquarters.

Cheung Kei had paid £270 million to acquire that building in 2017 from investment firm Said Holdings, the same year that it purchased 20 Canada Square, located a four-minute walk from 5 Churchill Place, for £410 million from Toronto-based Brookfield. Receivers took control of that 12-storey office and retail building in June 2023 and have yet to find a buyer for the asset.