US make-up maker Mary Kay Inc is inching closer to buying its own office building in downtown Shanghai, as the beauty supplier makes plans to spend as much as RMB 820 million ($135 million) to be its own landlord in China’s commercial centre.
The deal to purchase The Point Jingan, an 11-storey building in the northwest corner of downtown Shanghai’s Jing An district, which was reported in The Wall Street Journal today, has been in discussion since the middle of last year. According to sources familiar with the deal, the transaction is motivated by the company’s desire to own space rather than renting.
With a gross floor area of 26,925 square metres the reported purchase price would value the asset at RMB 30,454.97 ($5,018.95) per square metre.
In statements filed with the Hong Kong Stock Exchange during January, the seller is a joint venture firm comprising subsidiaries of Nanyang Holdings, Van Shung Chong Holdings and Celestial Asia Securities Holdings.
The current owners purchased the property in June 2007 for 420 million yuan, the statement said, and will record an unaudited gain of approximately RMB 187.1 million on the deal, after share sales, tax, and other related costs. The seller indicated that it expects the deal to close on or before 31 August 2014.
Opting to Own Office Space
Mary Kay’s move to own office space could be seen as a vote of confidence in the country’s real estate markets and legal system, as most multi-national companies still prefer to rent their offices in China.
According to the Journal report, Mary Kay already owns a production facility in Hangzhou.
However, sources familiar with the deal have questioned the financials behind the transaction, noting that the property, which was completed in 2007 is already close to full occupancy.
With average office leases in Shanghai lasting at least three years, Mary Kay may need to wait an extended period of time before it can move its own operations into the building and begin to realise savings on its existing office rental.
On the plus side, once it takes possession, the company famous for outfitting its top salespeople with pink Cadillacs could have the option of painting its office building in its official company colour.