Phoenix Said Seeking Buyer for Wan Chai Commercial Project at HK$330M

Phoenix Property Investors is seeking a buyer for a commercial redevelopment project in Hong Kong’s Wan Chai district at an asking price of HK$330 million ($43 million), according to people familiar with the matter who spoke to Mingtiandi.

The Hong Kong private equity shop headed by financiers Benjamin Lee and Samuel Chu has put the boutique-sized project at 189 Johnston Road on the market just over one year after completing its acquisition of the 1974-vintage property that occupies the site.

Located 250 metres from Wan Chai MTR station, the 1,500 square foot (139 square metre) site can yield up to 22,000 square feet of gross floor area, and Mingtiandi has come to understand that that the disposal of the property is not related to Hong Kong’s COVID-19 driven property market woes.

Making Way for a New Tower

Based on the development’s potential GFA, the site could fetch HK$15,000 per square foot if sold at the HK$330 million asking price.

The plot can be developed as either a commercial property of up to 25 storeys in height, a 50-room hotel, or a co-living centre, according to CBRE, which has been appointed as sole marketing agent for the project.

“With the COVID-19 situation under control in Hong Kong and 90 percent of people back at work, this redevelopment opportunity in a core Wan Chai location popular with investors will appeal to small and medium-sized developers as well as co-living operators,” said Reeves Yan, CBRE’s head of capital markets in Hong Kong.

Noting that strata-title sales of office properties near the Johnston Road project can achieve between HK$25,000 and HK$28,000 per square foot, CBRE’s Yan said that 189 Johnston Road represents a rare opportunity to buy a redevelopment project in an area where new land supply is scarce.

Phoenix Property Investors declined to comment on the proposed sale.

A Short Time on Johnston Road

The real estate investment firm had acquired a majority of the building during 2018 when it bought up ten residential units and a shop in the property just east of Fleming Road for a reported HK$160 million.

By March of last year Phoenix had acquired nearly 94 percent of the space in the building before applying for a compulsory sale to acquire the sole remaining unit at a value of HK$150 million for the whole property. Official records show that compulsory sale application was later withdrawn, with the fund manager said to have completed its acquisition of the remaining unit around April 2019.

Phoenix is said to be continuing to monitor opportunities in the market in the normal course of its fund management process.

Wan Chai Warms Up

Just two stops east of Central – Hong Kong’s most expensive office market – developers have been mining Wan Chai for development opportunities, buying up old commercial buildings which can be demolished to make way for new offices and hotels.

Blue chip Hong Kong developer Henderson Land’s upcoming 65,083 square foot office project at 206-212 Johnston Road, which is due to complete later this year, is just 100 metres west of the Phoenix site, while Sun Hung Kai Properties is developing a 130,000 square foot office tower 500 metres east at 222 to 228 Wan Chai Road.

Smaller property investors are also getting in on the act, with a commercial redevelopment site at 72-76 Queen’s Road East in Wan Chai selling for HK$253 million just over two weeks ago, according to a local media account. Based on its maximum gross floor area of 30,000 square feet, that Wan Chai project changed hands at HK$8,433 per square foot.

That media account had cited market sources indicating that the property, which occupies a 2,014 square foot site, had been acquired by investor Francis Law, although Mingtiandi sources now indicate that the Toyo Mall tycoon was not the buyer.

Despite a slow first quarter, CBRE’s Yan said that leasing enquiries in Wan Chai have picked up in April and May, with some tenants in Central aiming to save money by relocating to the area which, together with Causeway Bay, constitutes the eastern fringe of the island’s core office district,

Grade A office rents in the Wan Chai and Causeway Bay submarket fell by 4.5 percent during the first three months of 2020 compared with the previous quarter, with rental values for premium properties going for an average of HK$115 per square foot per month, according to CBRE.

Exiting Investments

Phoenix is seeking a buyer for the project as the private equity shop settles into divestment mode, including have sold off a pair of properties earlier this year.

In February, the property fund manager disposed of a row of shophouses in Singapore’s Chinatown for S$54 million ($38 million) to Aberdeen Standard Investments. That disposal earned Phoenix and its investors a mark-up of more than 20 percent over the S$42.8 million the firm paid to purchase the heritage properties from Japanese shipping company K-Line in late 2014.

A month before that Singapore deal, the firm had sold an apartment building in Tokyo for JPY 20 billion ($190 million), just 30 months after buying the Shinagawa area property.

Phoenix reached a final close of $1.15 billion on its latest opportunistic real estate fund, Phoenix Asia Real Estate Investment VI, in November last year.