A compact hostelry in Causeway Bay has become the latest Hong Kong property to change hands at a discount, with a mainland buyer picking up Le Petit Rosedale Hotel in the bustling shopping district for 34 percent below the seller’s earlier asking price.
ITC Properties sold the 31,156 square foot (2,894 square metre) hotel for HK$460 million ($59.3 million) with the Hong Kong-listed property developer noting 2019’s social unrest and this year’s coronavirus pandemic as motivation for the asset sale in announcing the deal to the Hong Kong exchange.
The buyer is a private company which lists as one of its directors, Wang Dingben, a mainland investor who is scooping up the Causeway Bay hotel as entities from north of the city’s boundaries accounted for 98 percent of cross-border property investments in Hong Kong during the first half of 2020, according to a recent report from Colliers International.
Hotel Trades at HK$4.9M Per Key
Wang, who is also an investor in Hong Kong-listed China New Economy Fund Ltd and was appointed as a non-executive director of the investment holding firm in June, is paying the equivalent of HK$14,764 per square foot for the 31-storey pencil building near Victoria Park, according to Mingtiandi calculations.
That investment in the 94-key property gives him rights to a hotel which posted HK$9.8 million in losses in the year ending 31 March, 2020, according to ITC’s exchange filing. At the stated compensation, Wang is paying the equivalent of just less than HK$4.9 million per key for Le Petit Rosewood.
After paying off a loan associated with the property which stood at HK$143.7 million on 31 July, ITC said it expects to generate a net cash return of approximately HK$154.3 million on the disposal.
A 31 March 2020 financial filing by ITC had listed a book value for the property of HK$342.7 million, however, the sale announcement noted a report by independent valuer Asset Appraisal Ltd, which valued the hotel at HK$460 million.
A senior broker familiar with the property said that Le Petit Rosewood, which occupies a 2,077 square foot site, is challenged by small rooms which are often laid out in an unusual fashion. Those peculiar floorplates might explain the seller agreeing to reduce the price from its original target value of HK$700 million, according to local news reports.
Wang purchased the property through local private entity Bon Ren Ltd, with the transaction expected to close in December of this year. The little-known investor is also currently a director of Henghe Investment Development Group (Cambodia) Company Limited, which develops real estate and manages hotels in Cambodia.
Hong Kong Hotels in Buyers’ Market
The sale of Le Petit Rosedale comes as hotel owners struggle to offload property assets onto a market depressed by pandemic closures and tourist restrictions.
The pressure on the hospitality industry is a region-wide phenomena, with trading of hotel assets in the first half of 2020 falling by nearly two-thirds across Asia Pacific, compared with the same period last year, Savills recently reported.
In Hong Kong, only one hotel deal was completed in the second quarter of 2020, with a company controlled by “Shoe King” Frank Leung Yat Cheong and his associate Lam Chun Kei disposing of the 50-key H1 Hotel at 423–425 Reclamation Street in Mongkok for HK$260 million, or about 21 percent less than they had expected to sell it for in a previously agreed deal which fell through.
Fund manager Pamfleet had reportedly put the Travelodge Hotel on Central’s Hollywood Road on the market last year, but saw a reported April deal fall through with the property remaining with its original owners at this time.
Those properties which do sell are changing hands at reduced rates, with another mainland investor, Beijing-based developer Vantone, having agreed earlier this month to purchase the Queen’s Hotel in Hong Kong’s Sai Ying Pun for HK$300 million, or about 31 percent below the seller’s earlier asking price.
Mainland Companies Scoop Up HK Assets
The acquisitions of Le Petit Rosewood Hotel and the Queen’s Hotel fit into a wave of increased activity by mainland investors in Hong Kong.
Of the total cross-border real estate investments into Hong Kong so far this year, 98 percent were by mainland buyers, according to a report by Colliers International last week, up from just 61 percent for the whole year of 2019.
During recent weeks that trend seems to be accelerating with a joint venture between China Vanke and Qingdao’s Qingjian picking up a residential site in Tai Po for HK$3.7 billion on 20 July. On that same day, mainland telecom giant China Mobile paid a record HK$5.6 billion to win a government tender of an industrial site in Sha Tin.
One of the mainland’s biggest conglomerates, China Resources, has made two Hong Kong investments in recent weeks, with units of the Shenzhen-based giant paying HK$820 million for a New Territories warehouse in July, and then leading a $300 million buyout of the City Super grocery chain in August.
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