A joint venture invested by Sunac China is selling an under-construction commercial project in Shanghai’s Lujiazui area to an insurer controlled by mainland sovereign wealth fund CIC for RMB 3.09 billion ($390 million), according to an announcement to the Hong Kong stock exchange on Sunday.
Hong Kong-listed China Reinsurance Group, which is 70 percent owned by China Investment Corp subsidiary Central Huijin Investment, is buying Shanghai Fuyuan Landmark Plaza, part of the multi-stage Shanghai Fuyuan Landmark project, from the JV between top-five mainland developer Sunac and its partner, China Enterprise — an affiliate of developer Shanghai Land.
The investment in the 36,000 square metre (387,500 square foot) office property near the banks of the Huangpu River comes just two months after state-owned developer Shanghai Land formed a real estate investment fund with another mainland insurance giant, and is part of a growing trend toward en-bloc investments in Shanghai commercial projects by domestic insurers.
Selling a Lujiazui Commercial Asset
The Sunac-China Enterprise joint venture has agreed to turn over building 1 in the Fuyuan Landmark project, which occupies a 14,147 square metre site within the mixed-use complex, to China Reinsurance on a turn-key basis following completion of the structure, which is expected in 2020. Originally intended for retail use, the tower has been redesigned for office purposes, and is one section of the 113,690 square metre Shanghai Fuyuan Landmark project at Lane 38 of Yuanshen Road in Lujiazui.
The overall complex rests on a 37,000 square metre site in an area which JLL’s China research team refers to as an emerging development cluster called Xin Min Yang in the northern section of Lujiazui between the Binjiang green space, Changyi Road, Fushan Road, and Yuanshen Road.
The RMB 3.1 billion transaction price means Hong Kong-listed China Reinsurance is paying RMB 86,111 per square metre for the commercial building, which has 18 storeys above ground level. The development is within two minutes walk of the Yuanshen Road MTR station on Shanghai’s metro line six and the Lujiazui financial district less than three kilometres south of the project currently has an office vacancy rate of only around five percent.
Under the terms of the agreement, the insurer will pay the RMB 3.09 billion in compensation via five installments to the vendor, Fuyuan Binjiang Development, between now and 2021, with 70 of the total compensation to be paid by the time of the expected delivery in 2020. Fuyuan Binjiang is a joint venture that was formed when Sunac purchased 47 percent of the project from China Enterprise in 2014 for RMB 1.58 billion. Property consultancy Cushman & Wakefield served as an advisor on the transaction.
Residential Component Among Pudong’s Priciest
The residential component of the project, which includes five separate buildings, is called One Riviera Park and kicked off sales in September of this year offering Shanghai’s elite views of Yangpu district across the river and the Oriental Pearl tower just over three kilometres upstream.
Homes in the luxury development sell for around RMB 140,000 per square metre, according to listings on local property marketplace fang.com — a rate nearly three times the average residential price in Pudong district.
Sovereign Wealth-Backed Player Buys for Rental Yield
According to China Reinsurance, the company intends to hold the commercial building as a source of stable rental income. “The acquisition of the property for investment purpose provides an investment opportunity for the group to obtain stable rental income and to seize the potential growth of the capital value of the property,” the company said in the stock market announcement.
According to Fang.com, office space in Lujiazui area has an average monthly rent of around RMB 300 per square metre, which means that if the project’s new owners achieve similar rates, the 36,000 square metre office tower could bring around RMB 10.8 million per month in rent to the insurer.
Shanghai Land Learns to Love Insurance
For Shanghai Land, this December deal is the second time in less than two months that it has raised cash through a transaction with a mainland insurance giant.
In October, the state-backed developer joined with China Resources Land and China Life Insurance to launch a RMB 15 billion ($2.7 billion) real estate investment fund targetting investments in office properties, hotel projects, commercial properties, rental apartment projects, and related service projects, according to an announcement by China Life, which which has $520 billion in assets under management and is ranked as the mainland’s largest insurer.
In July of this year, a China Life competitor, China Pacific Insurance (CPIC) led the RMB 13.6 billion purchase of a commercial site near Shanghai’s Huaihai Lu. The locally-based financial services firm took a 70 percent stake in the project near Xintiandi, with Shui On Land holding 25 percent and local developer Shanghai Yongye Group chipping in for the remaining five percent.