Keppel Buying Office Building in Beijing’s Zhongguancun for RMB 197M

Keppel Land China, the mainland property arm of Keppel Corporation, has announced that it is acquiring an office building in Beijing for RMB 178.6 million ($25 million), as the company pushes forward with plans to grow its commercial real estate footprint in China.

Keppel is buying the property from local private equity firm HiTone Capital, which acquired the asset eight months ago for an undisclosed sum, according to the Shanghai and Beijing-based firm.

The 4,241 square metre (45,650 square foot) building in the city’s Zhongguancun tech hub, often referred to as China’s Silicon Valley, is currently being revamped by HiTone as “Shangdi Neo”, with a conversion of the property into flexible office space due to finish in the fourth quarter of this year.

The whole of the five-storey building has been pre-leased to Shanghai-based Distrii, a hi-tech co-working operator invested by Singapore’s City Developments Limited.

The acquisition is Keppel’s second buy in Beijing’s tech nerve centre, coming eight months after the company acquired a property in the same area for RMB 555 million.

Eyeing China’s High-Growth Cities

“Following the acquisition of a commercial property in Beijing’s Haidian District earlier this year, we are pleased to secure another prime commercial property in the same area,” said Keppel Land China’s president, Ben Lee. “Keppel Land China will continue our strategy to grow our commercial portfolio in China, with a focus on high-growth cities such as Beijing.”

Under the terms of the agreement, the Singapore-headquartered company will pay RMB 20.9 million for 100 percent equity in a special purpose vehicle called Beijing Shunxiangren that owns the property, and will also loan RMB 157.7 million to the SPV to repay its outstanding debts.

Completion of the acquisition is expected to take place by the fourth quarter of 2019.

Located at 1 Shangdi East Road, the five-storey property is in the Shangdi Information Industry Park, part of Haidian district’s Zhongguancun tech hub which is home to China’s Baidu, Bytedance and other tech giants.

“With the low vacancy rate of offices in Zhongguancun, which stood at 1.5 percent as at end-2018, coupled with the rapid growth of the technology sector, we are confident that our commercial development will meet the strong demand for quality office space in the Zhongguancun area,” Lee said.

The sixteen-year-old property is 150 metres from from Jingxin Expressway and a five minute walk from the Xi’erqi metro station, which serves an interchange between Beijing’s line 13 and Changping lines.

Keppel Targeting Mainland Tech Sector

Keppel announced its first Zhongguancun acquisition at the end of January last year, unveiling its buyout of a nine-storey office building directly above the Haidian Wuluju metro station.

Keppel has also increased its Shanghai footprint this year following an agreement in March to acquire Yi Fang Tower, a recently completed commercial development in Shanghai’s Hongkou district for RMB 4.6 billion.

That deal saw Keppel Capital and Keppel Land, along with a consortium of co-investors, agree to pay RMB 61,000 square metre for the 74,400 square metre riverfront office development.

HiTone Capital Notches a Deal a Week

For HiTone Capital, the sale of the Beijing property represents the second deal in two weeks for the four-year-old private equity firm founded by former Warburg Pincus executives Qian Wang and Kevin Zhao.

Just last week, HiTone teamed up with US private equity giant KKR to jointly acquire a six-storey property in Shanghai’s Huangpu district for an undisclosed amount, with the goal of converting that property into a “Neo” branded mixed-use development featuring a boutique hotel, offices, and shops.

Targeting distressed properties to be converted into upmarket offices, hotels or retail spaces, the company has reportedly acquired eight assets since 2017 and exited four of them.

At least three more Neo projects are said to be in the pipeline, including two in Shanghai, and one more in Beijing.

Backed by cornerstone investors including TPG, China Lodging Group, Sunshine Insurance, Everbright Ashmore, and Jinmao Capital, HiTone Capital manages RMB 5 billion in funds, according to the company.