Henderson Faces Cost Quandary as 23-Storey Kowloon Tower Wins Compulsory Sale Nod

Hong Kong developer Henderson Land has received approval for the compulsory sale of one of two blocks in the storied Champagne Court in the heart of Hong Kong’s Tsim Sha Tsui district, according to a ruling by the Lands Tribunal.

The builder intends to redevelop the ageing property into a 23-storey commercial building comprising retail shops, offices, and a restaurant on the top floor, according to plans filed as part of the compulsory sale application.

However, the ongoing slide in Hong Kong commercial property values are casting uncertainty on the benefits to the developer of moving forward with the purchase of the remaining pieces of a property which was appraised at HK$1.73 billion ($220 million) in October 2022, with valuations having slid over the ensuing 12 months at the same time that costs have risen.

“The reference date of the redevelopment value was 6 October 2022, about one month before the start of the trial, but it is over 12 months from the current date. Over the past year, office prices in Hong Kong have dropped over 5 percent, while construction costs and interest rates have increased. The reserve price of HK$11,592 per square foot on the accommodation value is therefore high in today’s market,” said Alex Leung, chief surveyor at CHFT Advisory and Appraisal.

Henderson Land had not responded to Mingtiandi’s queries by the time of publication.

Plans in Limbo

Henderson began acquiring units in the building in 2011 and reached the 80 percent threshold for compulsory sale in 2019, followed by a lengthy court process after the developer applied in August 2020 for the transaction forcing owners of the remaining units in the 66 year-old property to sell at the appraised value.

The property, located a six-minute walk from the Tsim Sha Tsui MTR station at 16-20 Kimberley Road, is set to have shops from the ground floor to second floor, topped by a third floor podium garden, with offices on the fourth to twentieth floors, and a restaurant on the 21st floor, according to preliminary plans filed as part of the compulsory sale application.

Upon completion, the property’s gross floor area will total 147,396 square feet (13,694 square metres), according to Henderson’s annual report.

While Henderson has won approval for the compulsory sale for Block B, one of two adjoining buildings which constitute Champagne Court, it is understood that the developer has also been acquiring units in Block A and intends to redevelop the combined property to leverage its adjacency to The Mira Hong Kong, a 492-key hotel owned by the company’s Miramar Hotel and Investment Company subsidiary.

But the change in property values since the time of the Champagne Court appraisal throws the developer’s plans into doubt and raises the possibility of Henderson baulking at buying property at above current market rates. Should the company not bid in the upcoming auction, it would be only the fourth failure of a compulsory auction since Hong Kong instituted the process as a way to encourage redevelopment of ageing properties in 1999, according to Leung.

“If Henderson goes ahead and acquires the whole site based on the reserved price of HK$1,728 million through compulsory auction, the amount it would need to pay to various minority owners is about HK$472 million, as calculated from the judgment documents,” Leung told Mingtiandi. “On the other hand, if Henderson chooses to wait and not bid in the upcoming auction, the redevelopment value will be re-assessed,” he added, mentioning that a new application would likely result in a valuation lower than the HK$1.73 billion figure in light of current market sentiment.

Hong Kong’s property market woes have seen the city’s commercial rents struggle, with retail rents in Tsim Sha Tsui still down 39 percent from before the pandemic, according to a report by property consultancy Cushman & Wakefield. Offices have not fared much better, with consultancy Colliers projecting prime office rents in the Asian financial centre to decline 4 to 5 percent year-on-year in 2023.

Once Kowloon’s Tallest Building

Constructed in 1957 and once known for its vice dens, Champagne Court is situated near the eastern edge of Kowloon Park across Nathan Road and is now a hub for photo equipment shops.

The property occupies a 22,983 square foot site and is divided between Block A, which is situated at the intersection of Kimberley Road and Carnarvon Road, and the slightly larger Block B.

Local media reports that the developer in September 2022 paid HK$16.5 million for a 762-square foot room on the fourth floor, representing a transaction price of HK$21,654 per square foot and a 114 percent premium to the unit’s HK$7.72 million appraisal value as listed in Henderson’s compulsory sale application. In June 2019, Henderson purchased a ground floor shop unit in the building for HK$77 million.

The land on which the property sits was purchased by the late tycoon Henry Fok Ying Tung for HK$1.13 million in 1954 and built into what was Kowloon’s tallest building at the time, according to local media reports.

Redevelopment Continues

Henderson’s redevelopment plans for Champagne Court come as the developer has been boosting its presence in Kowloon via a string of investments in recent years.

In September 2022, the developer acquired the third of four adjoining sites in a HK$1.2 billion ($150 million) compulsory sale of an ageing building in Kowloon’s To Kwa Wan neighbourhood, with plans to develop a 27-storey residential and commercial project worth as much as HK$9 billion ($1.2 billion) on the merged site.

In September 2021, the builder won a residential project in To Kwa Wan for HK$8.1 billion ($1.04 billion) through a tender held by the Urban Renewal Authority.

Back in Tsim Sha Tsui, local peer New World Development received approval from the Lands Tribunal in February for a compulsory sale of the Hankow Apartments, located a seven-minute walk from Champagne Court at 43-49A Hankow Road. The developer applied for compulsory sale of the property in 2019 and plans to redevelop it into a 24-storey commercial building.

That project is just next door to a set of shops at 31-37 Hankow Road which local redevelopment specialist Lofter Group acquired for HK$1.5 billion ($190 million) in May 2022 in a joint venture with investment managers BentallGreenOak and Schroders Capital. The partners plan to develop a 115,800 square foot (10,758 square metre) commercial project on the site.