Building A Value-Add Strategy for Shanghai Sponsored Feature

Just over one year after forming a joint venture with GIC to acquire and manage value-add commercial real estate assets in mainland China, investor and fund manager Hong Kong Shanghai Alliance (HKSHA) is close to completing its first project under the partnership with the Singaporean sovereign wealth fund.

Central Park Jing An, the latest in Hong Kong Shanghai Alliance’s series of Central Park-branded projects is already 80 percent leased just weeks after its official opening in August.

The company is chaired by US-educated businessman Andrew Yao and managed by a highly experienced management team, mainly from Hong Kong, with rich local knowledge. Yao credits the company’s decade of experience in the Shanghai market with helping it to gain extensive contacts with government leaders and service providers, as well as insights into the needs of the community that allow it to secure prime assets and turn those properties into successful projects in China’s most competitive real estate market.

Adding Value to the Community and to the Building

While value-add is a popular approach for investors in many developed real estate markets, HKSHA has pursued its own version of the strategy, which starts with understanding the needs of the neighbourhood and the district, as much as being able to renovate and lease up a specific building.

Pursuing a leasing strategy with specific targets to improve the tenant mix is a key component to HKSHA’s value-add approach. Before undertaking a project, the company implements pre-marketing to target industries and organisations that allow it to secure MOUs with prospective tenants prior to closing the deals.

“To be successful in Shanghai, it helps to understand the priorities of the district government and know the plans for the community, as well as knowing the social responsibilities of the state-owned enterprises” Yao explained. “The local authorities have their targets for upgrading each neighbourhood, and investors are more likely to be successful if their projects are aligned with these targets.”

HKSHA, which had invested in four value-added redevelopment projects in Shanghai prior to taking on this latest Jing An venture, also ensures that the building fit-out and leasing strategy are in tune with the needs of the community and the goals of the local authorities.

For its Central Park Jing An project, which is located on Hengfeng Road in an up and coming area just north of the West Nanjing Road business hub and south of Shanghai’s main railway station, that has meant beautifying the area around the 59,000 square metre office project, by enhancing the landscaping and improving access to the grade A building.

In refitting the project, the company’s team introduced a vaulted ceiling in the entry below a mezzanine floor to open up the lobby to visitors and added a rooftop garden to the building’s top floor to enhance its appeal to media firms and other tenants.

To create added value for the tenants, Hong Kong Shanghai Alliance also refurbished the unused lift lobbies within the multi-zone building into co-sharing spaces and purposely constructed a co-meeting function area to support tenant operations within the building. As an additional amenity, the project also has a fitness centre on the second floor to cater to the wellness priorities of workers in the building.

Learning From Past Experience

HKSHA attributes its ability to achieve a quick completion to the Jing An Central Park project, which has now leased all but 20 percent of its space, to its success with Central Park Putuo, a project just two kilometres away on Changshou Road which it sold to US fund management giant BlackRock in 2017.

For that earlier project in Putuo District, which has since been renamed as Trinity Place, HKSHA had pursued a similar approach of upgrading the surroundings to help add value to an asset which it acquired in 2013.

After working with both the transport department and the town planning department, as well as other local stakeholders concerning the Putuo District initiative, the company’s designers and project managers arranged for electrical lines that obscured the tower’s entrance to be moved away, and opened up the area between the building and road to improve accessibility and ease traffic along the busy thoroughfare.

The company’s executives credit the understanding that they derived from working with local officials as critical to the eventual success of the redevelopment work and to their profitable exit from the investment. “We do not just focus on the renovation of a building but taking into the consideration of city regeneration in the neighbourhood,” Yao explained.

Building on a Shanghai Investment Track Record

With its latest project nearly fully leased, HKSHA is looking forward to taking on more value-add projects in the city.

In addition to the Changshou Road project and Central Park Jing An, the company has also completed Central Park Pudong, a 24,000 square metre repositioning on Zhangyang Road near the Bei Yang Jing station on Shanghai’s metro line 6.

HKSHA has already exited from its first three projects, the Point Jingan office building, the Park Lane which turned a hotel into a for-sale residential project and the Central Park Putuo office tower, which helped it to build up expertise in adding value to underexploited assets in the city.

“Having purchased all our last five projects from state-owned enterprises and successfully revamped and boost up the property value with successful exits, we have already established a good track record of working with the SOEs and district governments,” Yao told Mingtiandi.

Now, the company’s executives say they are already identifying new projects for their pipeline both through their partnership with GIC and through plans to launch other strategies in the future.

This sponsored feature was provided by Hong Kong Shanghai Alliance. For more information on the company and its projects, please click here.