Keppel Capital and Keppel Land, along with a consortium of co-investors have signed an agreement to acquire 100 percent of the equity in a recently completed commercial development in Shanghai’s Hongkou district for RMB 4.6 billion ($686 million), according to an announcement today by Keppel Corp, the parent company of the pair of Singapore real estate firms.
According to a previous announcement, Alpha Asia Macro Trends Fund III (AAMTF III), a privately held vehicle managed by Keppel Capital’s Alpha Investment Partners unit, along with Keppel Land China and a set of three investors said to include European financial institutions, formed a joint venture in September last year to buy the Yi Fang Tower in the commercial district just north of Shanghai’s historic Bund.
The consortium are purchasing the 74,400 square metre project from Dalian Yifang Group, a privately held investment firm controlled by Sun Xishuang, a long time associate of Dalian Wanda boss Wang Jianlin who is said to be the largest private individual shareholder in Wanda.
The deal marks the third acquisition of a Hongkou commercial asset at a value of $500 million or more by Singaporean investors within the last two years, according to Mingtiandi data, with two of those transactions involving Alpha Investment Partners.
Taking Over a Riverfront Office Project
“The proposed acquisition is in line with Keppel Capital’s investment strategy of creating value and driving returns for our investors,” Eric Goh, CEO for China at Keppel Capital said in the statement. “Yi Fang Tower is a quality asset that is well-connected to Shanghai’s core central business districts and is expected to meet growing demand from quality tenants in the professional services and financial sectors.”
Under the terms of the agreement between the buyers, Alpha’s AAMTF III will hold a 42.1 percent stake in the holding company for the combined office and retail complex, while Keppel Land China will hold 29.8 percent, and the remaining shares will be held by their partners in the acquisition. The deal for Yi Fang Tower, which measures 74,400 square metres (800,000 square feet) by gross leasable area, is said to have been brokered by CBRE with the parties expecting to complete the transaction within the second quarter of 2019.
The RMB 4.6 billion acquisition equates to around RMB 61,000 per square metre, which analysts at Savills indicated was below market expectations after Harbor 55, a much larger development in the same area which includes a sizeable retail portion, sold for RMB 65,000 per square metre last year.
The recently completed Yi Fang Tower is just across the Huangpu River from the Lujiazui financial district, and consists of 47,500 square metres of office space spread across two 18-storey office towers and a 26,900 square metre retail podium. The Green Building-certified complex has a gross leaseable area of about 74,400 square metres.
With 47,500 square metres of Grade A office space, the Green Building-certified complex targets multinationals looking to escape rising office rents in Lujiazui or West Nanjing Lu, attracted by its direct access to the Shanghai metro and the Beiheng Tunnel, which when completed in 2020 will improve access to Pudong.
Savills reported that rents for grade A developments in the vicinity of the Yi Fang Tower are roughly RMB 8.0 to RMB 10.0 per square metre per day, compared to an average of over RMB 11.5 per square metre per day in Lujiazui.
Singapore Loves Hongkou
The Keppel-led acquisition is the second major purchase of a Hongkou asset by a Singapore government institution in five months, after CapitaLand’s Raffles City China Investment Partners III (RCCIP III) fund formed a 50:50 joint venture with Singapore’s sovereign wealth fund GIC to acquire the Star Harbour International Center project for RMB 12.8 billion (about $1.85 billion) in November last year.
Alpha and Keppel Land are both familiar with the North Bund neighbourhood after having entered into a co-investment agreement with Allianz to acquire the Kengo Kuma-designed Hongkou SOHO office project in 2017 for $525 million. Alpha also previously owned the Shanghai International Plaza in Hongkou before selling that office building to Lasalle Investment Management for a cash consideration said to be in the region of $375 million in April 2018.
In that same month, Alpha teamed up with Allianz again to acquire a Grade A office asset in Shanghai’s Bay Valley Business Park from CITIC Capital for an equity consideration for $48 million.
Alpha’s AAMTF III, the latest installment in the private equity firm’s pan-Asian fund series, raised a total of about $1.1 billion when it closed earlier this year. The branch of Keppel Capital announced in January that the fund had so far made investments in Shanghai, Tokyo and Brisbane, and would have assets under management of about $2.4 billion when fully leveraged and invested.
Yifang Sells Off Shanghai Foothold
Originally intended as Yifang’s Shanghai headquarters, the Dalian firm purchased the land parcel for the Yi Fang Tower at the end of 2013 through a joint venture with Dalian Wanda, with Wanda holding a 35 percent stake at that time. The Dalian duo paid around RMB 32,500 per square metre of GFA for the land at that time, according to Savills, with Wanda said to have since exited the venture.
The founder and chairman of Dalian Yifang is Chinese billionaire Sun Xishuang, who bought the Australian theatre chain Hoyts for $743 million in 2014, before later selling that company to Dalian Wanda.
Shanghai’s North Bund area has been promoted by the municipal government as an emerging business district, and it has recently seen high profile investments.
At the Ninth North Bund Wealth and Culture Forum last week, Hongkou district director Zhao Yongfeng said that a “golden triangle” had formed between the North Bund financial zone, Lujiazui in the Pudong New Area, and the Bund, with the North Bund district housing 1,520 financial institutions, which manage assets worth over $744.5 billion.