GIC-CapitaLand JV Buying Shanghai Mixed-Use Project for $1.85B

Singapore’s CapitaLand announced on Tuesday that its Raffles City China Investment Partners III (RCCIP III) fund has formed a 50:50 joint venture with Singapore’s sovereign wealth fund GIC to acquire the Star Harbour International Center project (上海星外滩) in Shanghai’s Hongkou district for RMB 12.8 billion (about $1.85 billion).

The announcement ended a month of speculation regarding the potential acquisition of the 1.5 million square metre (16 million square foot) project after Mingtiandi first reported the potential purchase from Shanghai Port Group in October.

The project, which is currently nearing completion and which CapitaLand indicated will be opened in phases starting in the second half of next year, will become CapitaLand’s third Raffles City integrated development in Shanghai, its ninth in China and the 10th globally.

Singapore Giants Build Mainland Portfolios

“This prime asset will begin operations in phases from the second half of 2019, giving us speed to market in the competitive Shanghai market, which continues to power ahead,” said Lee Chee Koon, the group’s CEO. “In line with our long-term belief in China, we will stay invested through market cycles to reap the compounding effects on our investments.”

The riverfront development, which occupies a 4.05-hectare commercial site in an area near the Huangpu river now marketed as Shanghai’s north bund, consists of a pair of 50-storey Grade A office towers which are linked at the base by a seven-storey shopping mall. At 263 metres tall, the project is the tallest twin-tower office complex in Shanghai, and overlooks both the Bund and the Lujiazui financial district. The future Raffles City project connects directly to Shanghai’s metro Line 12 as well as to the upcoming Line 19.

“The property is a landmark Grade A integrated development in Shanghai’s core Central Business District,” Lee Kok Sun, chief investment officer for GIC Real Estate, said in the fund’s own statement. “We are attracted by the quality of this asset and expect it to generate steady, resilient cash-flows.”

The acquisition of the project, which measures 312,717 square metres by gross floor area, is in line with CapitaLand’s strategy of growing its portfolio by leveraging its fund management capability, the company said in its statement. The government-backed property conglomerate holds a 41.7 percent stake in RCCIP III, with the remaining interests held by investors from Asia, North America and the Middle East.

Sale Confirmed One Month After Government Filing

Today’s announcement came just over one month after Shanghai Port Group notified the Shanghai United Assets and Equity Exchange that it was listing for sale 100 percent of its equity in the project company that held its Star Harbour asset at a reserve price of approximately RMB12.79 billion.

The state-run developer’s planned sale of the landmark project came less than one year after it bought out its partner, China Jinmao Group, in what had originally been a 50:50 joint venture for just under RMB6 billion.

Future Phases Could Be on the Way

According to the website of the project’s designers, US-based Pelli Clarke Pelli Architects, the master plan for the project along the city’s Dongchangzhi Road includes four contiguous buildings connected by a rooftop garden and sky bridge overlooking the Huangpu River.

As a developing area situated next to Shanghai’s core Huangpu district and across the river from Lujiazui, Hongkou district has attracted an influx of investments in recent years. In April, LaSalle Investment Management acquired the 31-storey Shanghai International Plaza for RMB2.36 billion ($376 million).

In the first nine months of 2018, the average rent of Grade A offices in Hongkou’s north bund area rose by 10 percent, quicker than the citywide growth rate which held steady over the same period, according to a recent report from CBRE.

Koon said in the statement that CapitaLand will remain on the lookout for opportunities to deploy its capital into higher-yielding assets to improve its overall returns.

CapitaLand Sticks to Major Urban Hubs

Shanghai is part of the five core city clusters under CapitaLand’s China strategy, which comprise Beijing/Tianjin, Shanghai/Hangzhou/Suzhou/Ningbo, Guangzhou/Shenzhen, Chengdu/Chongqing/Xi’an and Wuhan.

Including this latest acquisition, CapitaLand now owns and manages 20 commercial properties in Shanghai that span over 1.8 million square meters in gross floor area, of which eight are integrated developments with office and retail components.

In China this year, the Singapore government-backed firm has to-date divested close to S$2 billion worth of assets, which includes the divestment of a group of companies that held 20 non-core retail assets.  In June, it bought a RMB5.7 billion ($864 million) mixed-use site in the western Chinese municipality of Chongqing to be developed into a retail, office and residential property yielding over 2,100 homes.