Kailong Real Estate is preparing to start work on its latest Hong Kong project after purchasing a pair of ageing buildings in the Tsim Sha Tsui district of Kowloon, according to the firm’s top executive in the city.
A joint venture between the Warburg Pincus-invested real estate fund manager and Hong Kong-listed Asia Allied Group in November acquired the On Lee Commercial Building at 37 Cameron Road in Tsim Sha Tsui for a reported HK$448 million ($57.7 million), picking up the building for about 30 percent less than the seller’s asking price six months earlier.
Kailong is understood to hold a majority stake in the joint venture, which made the acquisition shortly after the fund manager completed its acquisition of 35 Cameron Road.
The acquisition of the pair of properties just three minutes east of the Tsim Sha Tsui MTR station in the bustling commercial district, comes after Kailong closed on $575 million for its latest Greater China US dollar fund in October of last year.
Dynamic Hong Kong Market Generates Discounted Sale
The acquisition of the On Lee building, which occupies a 3,749 square foot site extending from Cameron Road through to Granville Circuit, comes after Kailong had closed on it purchase of the last unit of 35 Cameron Road in November, after spending a reported HK$650 million acquiring the property, which occupies a 3,760 square foot site.
“We had purchased one site for a pencil-shaped development in Tsim Sha Tsui, and then we had the opportunity to acquire to buy the property next door, which enables us to create a truly special project,” Kailong’s CEO for Hong Kong, Ivan Ho, told Mingtiandi.
Ho explained that the company now intends to knock down both buildings and develop a new commercial project of up to 70,000 square feet (6,500 square metres) on the consolidated site.
Minibus King Sells Kowloon Asset
Kailong is reported to have purchased its latest site from companies controlled by veteran investor Ma Ah-muk, known locally as the Minibus King, after making his fortune in the city’s bus industry.
While the opportunity resulted in part from owning the right property, the Kailong executive indicated that Hong Kong’s current downturn helped to precipitate the company’s most recent acquisition.
“If we had wanted to buy 37 Cameron six months earlier, it would have been at a 30 percent premium,” Ho said. “The price now is not cheap, but it provides clear synergies.”
According to Mingtiandi estimates, Kailong paid a total of just over HK$1 billion for the pair of sites on Cameron Road, an amount which works out to around HK$12,200 per square foot of finished area.
Commercial Building Planned
With a portfolio of six projects completed or currently under way in Hong Kong, Kailong’s Ho see opportunities to put Kailong’s expertise at creating value-added commercial projects to work on the Tsim Sha Tsui development.
“We are open-minded about the final positioning of the property,” Ho explained. “However, with K11’s Victoria Dockside within 15 minutes walk and Sun Hung Kai’s West Kowloon project also nearby, we can see this part of Kowloon is on the rise.”
The site benefits from having road access from both the front and back, an attribute which Ho foresees as providing benefits for use as a medical centre or other project which could benefit from providing visitors with the opportunity to park private cars on Granville Circuit.
In addition to the opportunity to develop the site into a specialised health care building, Kailong is also looking at the potential for hotel or mixed office and retail uses.
Buyer in The Center Becomes Seller in Kowloon
For the former owner of 37 Cameron Road, Hong Kong’s recent slide in commercial rents and rising vacancy levels may have dented the value of an already aging asset. Ma may have had extra motivation to sell his Kowloon asset due to liabilities arising from his holdings across Victoria Harbour in Central.
In late 2017 the local tycoon, who is known for buying and holding assets, was one of the biggest investors among a consortium that bought The Center skyscraper from CK Asset for HK$40.2 billion ($5.15 billion).
The octogenarian bought a total of 13 of the floors acquired in the 73-storey tower, with the consortium having financed the purchase with bonds yielding as much as 15.25 percent. While Ma has since sold some of his holdings, the prospects for moving strata title assets in Hong Kong have dropped as the city’s commercial real estate cratered in 2019.