Buying Platinum in Shanghai

In recent year, one of the most talked about topics in real estate has been China. Still, as many players have pointed out, for all the talk, there have been relatively few deals completed— but every few moths, it seems, more and more are sealed.

In January 2005, Macquarie Global Property Advisors, the private equity real estate arm of Australian bank Macquarie, made inroads into the Shanghai office market with the acquisition of the Xin Mao Tower—later rechristened Platinum—in Shanghai, the first major purchase of a property by a foreign investor in mainland China. Macquarie paid around $98 million (€78 million) for a 95 percent stake in the tower, which was under development and owned by Singapore-based property developer CapitaLand.

Located near the Hua Hai Road office district and the shopping and residential complex Xin Tian Di in the Puxi district, the 20-story building boasts more then 32,220 square meters of institutionalquality office space. Noted at the time for being the largest transaction value ever seen in the Chinese office sector, the deal also drew accolades for signifying increased interest in the office market.

Prior to the Macquarie deal, a lack of transparency and a lack of product kept institutional investors out of the space, as most foreign investors in the country had been chasing residential projects or distressed plays. But following Platinum—and thanks to good market fundamentals—the blueprint for getting a large office transaction done came into focus.

Platinum kicked off Macquarie's investment program in mainland China, which was expected to hit a reported $600 million for the 12 months ending in October 2006. More importantly, perhaps, was how the transaction sparked a spending spree by institutional investors looking at the Shanghai office market as the city's residential sector cooled. The deal was quickly followed by Morgan Stanley's acquisition of the World Trade Tower, the purchase of the Pimdeco Tower by Goldman Sachs, and Novel Plaza, which was scooped up by Citigroup.