PAG Buys Mapletree Bay Point, Reaches $1.5B First Close on Pan-Asian Fund — Exclusive

Private equity firm PAG has purchased Mapletree Bay Point, a prime office building in Hong Kong’s Kowloon East area which is home to both HSBC and WeWork, according to sources familiar with the transaction who spoke with Mingtiandi.

The acquisition comes more than seven months after Singapore-based Mapletree Investments had put the 660,301 square foot (61,344 square metre) property on the market, with market sources indicating that the transaction was priced at or below HK$8.58 billion ($1.1 billion), while other individuals closer to the deal cited a price of HK$9.9 billion.

Blackstone-backed PAG is said to have agreed to the purchase of the property before the lunar new year holiday, with funds for the acquisition coming from the Hong Kong-based firm’s second core plus/value-add real estate fund, which Mingtiandi understands reached a $1.5 billion first close at around the same interval.

Contacted by Mingtiandi, sources at PAG declined to comment on fund raising or on the asset acquisition.

Mapletree Sells Maiden Hong Kong Project

The transaction, which is expected to close in March or April of this year, values the 2017-vintage property at just under HK$13,000 per square foot. At the reported HK$8.58 billion price, the sale would be at a rate around five percent below what was said to be the Singaporean firm’s target sum when it reportedly put the property on the market in mid-2018.

Other sources familiar with the transaction have indicated to Mingtiandi that the asset traded at HK$15,000 per square foot, which would bring the transaction price to just over HK$9.9 billion.

In June last year the LEED Gold pre-certified property was said to be valued at HK$9 billion, however, since that time the market for commercial property in Hong Kong has cooled, with investment in yield-generating assets in the city dropping 27 percent in 2018 compared to the previous year, despite a hyperactive first half of the year.

Mapletree had purchased the project site, Kwun Tong Inland Lot No. 761, for $3.8 billion in 2014 to build its first office project in Hong Kong. As a condition of the land-use rights, the property owner is not allowed to sell space in the building on a strata-title basis.

Mapletree Investments did not respond to Mingtiandi’s enquiries regarding the transaction by the time of publication.

Selling a Kowloon East Hub

Mapletree Bay Point, which combines Kowloon East’s (relatively) affordable rents with 3.2 metre ceiling heights and 35,000 square foot floor plates, has already attracted a number of enterprise-level tenants.

HSBC became one of the building’s first major occupiers in early June, moving into some 70,000 square feet across two floors in the building which it had leased for a reported HK$35 per square foot. Apparel-maker VF Corporation committed to 10,500 square feet in the property’s mid-zone for a reported HK$25 per square foot in January 2018.

WeWork is said to be leasing its 36,000 square feet of space in a lower floor at a monthly rent of HK$25 per square foot, while insurer Cigna has leased a 35,000 square foot lower floor in the 19-storey tower at a reported HK$30 per square foot.

In total, Mapletree Bay Point, which is located near the Ngau Tau Kok MTR station between Wai Yip Street and Kwun Tong Road, has 568,517 square feet of net lettable area.

PAG Puts New Funds to Work

For PAG, the acquisition provides a chance to put to use some of its newly raised capital in a market it knows well.

In July last year PAG, whose Pan-Asian real estate strategy is managed by partner Broderick Storie, achieved a capital gain of HK$600 million from its sale of a data centre in the Hong Kong industrial district of Kwai Chung, less than three years after purchasing the property.

In March of last year the firm helmed by former TPG executive Weijian Shan received significant new backing when Blackstone acquired a minority stake in PAG for an undisclosed amount. In December, Blackstone reportedly purchased a 50 percent stake in a Sydney office complex from PAG for approximately A$400 million ($284 million).

The cash for the new acquisition is said to come from the firm’s PAG Real Estate Partners II fund, a pan-Asian core plus/value-add follow-on to the original PAG Real Estate Partners fund. According to a report last year by private equity industry publication PERE, PAG’s PREP II fund had raised $1 billion as of August, with the firm said to be targetting a final close of $2 billion.

The original PREP core-plus fund had a final close of $1.3 billion in 2016 with commitments from Allianz and Dutch pension fund manager PGGM.

In September last year PAG announced that it had reached a $1.9 billion final close on its Secured Capital Real Estate Partners VI (SCREP VI) fund, an opportunistic Asian real estate vehicle focused on the Japan market. The company had orginally targetted $1.5 billion in investments for that fund, and received at least $375 million from the Canada Pension Plan Investment Board (CCPIB) among other limited partners.