First Group Acquires Kowloon’s Centennial Building for HK$790M

Hong Kong developer First Group Holdings has signed a sale and purchase agreement to acquire a commercial site in New Kowloon for a reported HK$790 million ($102 million), as the firm tries to follow up on earlier successes in the gentrifying district of its home city.

First Group is acquiring 924-926 Cheung Sha Wan Road from the Fung family, which controls consumer goods and trading conglomerate Li & Fung, according to sources close to the transaction who spoke to Mingtiandi.

It is understood that First Group plans to invest HK$1.4 billion redeveloping the Centennial Building, a 33-year old industrial property which currently occupies the site, into a grade A office tower for strata sale.

The acquisition comes just two months after Mingtiandi revealed that First Group had purchased a commercial site in the Tsuen Wan area of the New Territories for HK$980 million.

Adding a Grade A Tower in New Kowloon

Originally an industrial hardware producer before making the switch to property development around 15 years ago, First Group is planning to complete the office tower by the end of 2023, Mingtiandi has come to understand. A change of use application will be applied for following the completion of the acquisition, which is expected to take place by the end of June.

Based on the maximum permitted gross floor area of 144,000 square foot (13,378 square metres), the firm will be paying HK$5,486 per square foot for the commercial site.

Savills, which represented First Group in the acquisition, said that MUFG’s current lease on the Centennial building will be terminated in six months’ time through a sale and redevelopment clause in the rental agreement, with the Japanese bank currently paying HK$1.7 million per month to occupy the building.

Targeting a Tried and Tested Area

Located in the New Kowloon neighbourhood of Lai Chi Kok, First Group’s latest Kowloon target is just 750 metres east of China Shipbuilding Tower, an office development at 650 Cheung Sha Wan Road which the company completed in 2017.

James Sui, deputy managing director and head of Savills’ Kowloon office, told Mingtiandi that the eventual selling price of the office space, once complete, would be in the region of HK$15,000 per square foot, with current market rents for the area standing at around HK$25 per square foot per month.

The project’s location within one minute’s walk of the Lai Chi Kok MTR station, will be a big draw for investors and tenants, according to Sui.

“There’s a limited supply of office space in the area, which makes redevelopment as a grade A office attractive, but the eventual selling price will depend on the timing and the market conditions at the time,” Sui said.

One hundred percent of the units in First Group’s 25-storey office development at 650 Cheung Sha Road, which was rebranded as the China Shipbuilding Tower after a mainland conglomerate bought the top two floors — as well as naming rights to the building in 2017 — have sold for an average of approximately HK$13,000 per square foot. The firm developed the earlier project after paying HK$1 billion for the site through a government tender in 2014.

Plunging Deal Volumes

The acquisition comes amid a plunge in commercial property transactions as a constant flow of bad news dents investor confidence in Hong Kong’s real estate market.

According to data analytics firm Real Capital Analytics, 2019 deal volume in the Asian financial reached just $15.2 billion – down 42 percent from the previous twelve months. That slowdown has transformed to a near halt more recently, due to the current public health crisis.

“With investors increasingly hesitant over the past month due to the coronavirus outbreak, there has been an added pressure on capital markets, but centralised areas have been more protected,” Sui said.

Selling Up after 14 Years

The Fung family is selling the Centennial Building fourteen years after Li & Fung spent HK$240 million to acquire the property from European trading house Jebsen Group in 2006, in a deal which yielded jail time for some of the participants.

The acquisition was probed by Hong Kong’s Independent Commission Against Corruption, which alleged that representatives of property agency Centaline offered cash to the  general manager of Li & Fung, Ho Wai-jon, as a reward for appointing Centaline.

Following a trial in 2007, Mark Chan Ngan-lau, Centaline’s former general manager, was handed a prison sentence of 40 months after admitting to offering Ho bribes worth HK$1.41 billion, according to court records.

Ho was sentenced to three years’ imprisonment after admitting to taking an HK$800,000 bribe as a reward for appointing Centaline, while two other Centaline agents were sent to jail.