An opportunistic fund managed by LaSalle Investment Management is acquiring a building in Shanghai’s Yangpu district from Landsea Green Management Limited for RMB 253 million ($35.2 million), with market sources expecting the US firm to renovate the property for use as rental apartments.
LaSalle Asia Opportunity VI LP agreed to buy a 100 percent equity interest in a Landsea subsidiary that holds the Shanghai Huangxing Building, Landsea said in a filing to the Hong Kong stock exchange late last month, with the purchase marking the investment manager’s second rental residential project in China’s commercial capital.
LaSalle is paying RMB 102.5 million ($14.1 million) in cash to take over the 22-storey tower, which was valued at RMB 253 million as of September by an independent third party. As part of the deal, the fund manager also takes over the project company’s debt of RMB 150.5 million, according to the Landsea statement. The mainland developer said it will book a loss of RMB 56.5 million from the sale.
A market source familiar with the transaction told Mingtiandi that LaSalle, the Chicago-based subsidiary of property consultancy JLL, will likely retrofit the property and run it as rental residential units. The building that once hosted the office of China Pacific Insurance Group has already been converted into apartments, and is believed to be vacant at present, the source said.
East Bund Access
Located at 18 Huangxing Road in Yangpu district, the Huangxing Building spans with total area of 11,427 square meters (123,000 square feet) and is situated just next to the inner ring road – which is the boundary of the city’s central area – and about three minutes’ walk from Ningguo Road station on metro Line 12.
LaSalle is paying the equivalent of RMB 22,140 per square metre for the 2005 vintage building, which a market source said is “a reasonable price for that location.” LaSalle has declined to comment on the transaction.
Landsea’s statement showed the project incurred a net loss after tax of RMB 2.6 million last year, compared with a net profit of RMB 121,258
The site is just over 2 kilometres (1.25 miles) inland from the Yangpu Bridge spanning the Huangpu River to Pudong and near Yangpu district’s East Bund area. Food delivery giant Meituan and video streaming platform Bilibili have both acquired sites in East Bund to build their offices.
“The East Bund area has attracted some big-name tech-related companies as well as a number of start-up enterprises. The area will continue to see further commercial development in the future and at that time should reach full commercial maturity,” Shaun Brodie, a senior director at Cushman & Wakefield Greater China, told Mingtiandi.
The rent for a one-bedroom apartment of 60 square meters in the area is about RMB 7,500 per month, Brodie said.
Struggling Mainland Developer
“The group is principally engaged in development and sales of properties in the PRC and the United States. Holding investment properties and hence earning rental income is not a major development direction for the company in the future,” Landsea noted in its statement. The company added that the asset disposal will help it strengthen cash flow.
Like many other mainland Chinese developers, Landsea has delayed debt repayments as it battles a liquidity crunch.
Ranked 135th among Chinese builders by contracted sales attributable to shareholders during the first nine months of this year,, Landsea Green last month secured agreement from investors holding 78 percent of the principal on a $170 million offshore bond coming due on 21 October for new notes maturing in October next year.
This bond accounted for around 15 percent of Landsea’s total debt as of 30 June, according to Moody’s, with the credit rating agency having already slashed Landsea’s corporate family rating to Caa1 from B3 last month. “Moody’s believes Landsea’s weak liquidity is insufficient to address its repayment needs,” the company’s analysts said at the time.
As China’s housing market has continued to slide throughout this year, LandSea Green has suffered with the rest of the industry. Contracted sales for the Nanjing-based developer in the first nine months of this year declined 49.7 percent compared with the same period of 2021, according to the company’s unaudited operating statistics.
With sales evaporating, the embattled developer has scrambled to raise cash from asset disposals.
In late August, Landsea sold a 50 percent stake in the Beijing Shipbuilding Building Project to Sunshine Insurance Group for RMB 137.6 million, booking a loss of RMB 11.9 million.
At the end May, Landsea sold a 10.7 stake in its Nasdaq-listed US subsidiary Landsea Homes for $45 million to a large shareholder in a “quasi equity, real debt” arrangement with a 10 percent annual interest.
In mid-May, Landsea sold its entire equity in an apartment project of 5,730 square meters in Nanjing for RMB 85.5 million.
Renting Comes to Town
The value of LaSalle’s Yangpu prize comes from the growth of China’s rental housing sector, as home prices in the country’s major cities become some of the least affordable in the world.
Claire Tang, co-chief investment officer for Asia Pacific and head of Greater China at LaSalle Investment Management, sees great potential in China’s multi-family sector.
“I do think in the China context, it certainly has the scale to become the largest in Asia or the largest globally in terms of an asset class, but there’s quite a ways to go,” Tang said in an online panel discussion on MTD TV in March.
“What’s happening is younger people are renting longer before they actually buy houses in Beijing and Shanghai. In Beijing and Shanghai, the housing price is anywhere between 30 to 40 times the amount of average income…From the capital market side, there’s been a lot of demand for investment in multi-family because of the relative resilience that this sector has shown throughout Covid,” LaSalle’s Tang said.
Last year, LaSalle and Shanghai-based developer Jingrui Holdings acquired a retail and hotel property in the megacity’s Hongqiao area for RMB 438 million ($68 million) with plans to convert the asset into a rental apartment project.
Also leveraging the potential of China’s rental housing market and the financial distress of some of the country’s largest developers is Brookfield. The Canadian fund manager Brookfield in September bought a serviced apartment project in Yangpu district for RMB 1.26 billion ($180 million) from Guangzhou R&F Group and KWG Group Holdings.
LaSalle announced in September that it had raised over $2.2 billion in equity for LaSalle Asia Opportunity VI, with that committed capital will providing the firm with an investment capacity to acquire over $7 billion in assets in Asia Pacific’s key markets including Australia, China, Hong Kong, Japan, Korea and Singapore.