Gaw Capital JV agrees to record HK hotel investment

In agreeing to the purchase of the Novotel Nathan Road in Kowloon for HK$2.37 billion, a joint venture between Hong Kong firms Gaw Capital Partners and CSI Properties is thought to have lined up the biggest single-asset hotel deal in Hong Kong in more than a decade.

A joint venture including Hong Kong-based private equity real estate firm Gaw Capital Partners has completed the purchase of the Novotel Nathan Road hotel in Kowloon for HK$2.37 billion (€229.02 million; $304.97 million). The deal has been dubbed by seller LaSallle Investment Management as the largest single-asset hotel transaction in more than 10 years.

Via a 50:50 joint venture with CSI Properties, a real estate investment business with a value-add strategy and a portfolio comprising more than 1.6 million square feet of commercial and residential space in Hong Kong and Shanghai, Gaw Capital is to acquire the asset on behalf of its third China opportunity real estate fund, Gateway China Real Estate Fund III. The fund closed in January 2011 on $423 million of equity and, thanks to this investment, is now close to 70 percent invested.

Christina Gaw, managing principal and head of capital markets at Gaw Capital Partners, told PERE the firm was incentivised to acquire the hotel by what it perceived as a lack of hotel rooms in the city currently for both mainland China tourists and business travellers. She said: “The location of this asset is superb in taking advantage of this target group of clientele. The additional retail enhancement potential further adds to the attractiveness of this asset with our value add strategy in mind.”

The strategy to continue adding value to the hotel comes after work done already by the property’s seller LaSalle Investment Management. In its announcement of the sale, the Chicago-based firm said it refurbished and rebranded the hotel after buying it in 2006 on behalf of its LaSalle Asia Opportunity Fund II, a pan-Asia real estate opportunity fund that attracted $1 billion of equity from the firm’s investors the year before.

Formerly known as the Majestic Hotel, LaSalle rebranded the property to Novotel before opening it again in 2008. The firm said it had brought its average occupancy up to more than 95 percent since.

Andrew Heithersay, international director at LaSalle, said of the deal: “The divestment of Novotel Nathan Road Kowloon Hong Kong demonstrates LaSalle’s ability to identify attractive market sectors and enhance returns through a targeted value-add strategy.”

LaSalle is currently raising equity for its fourth pan-Asia opportunity fund. In October 2011, PERE revealed the firm had cancelled $600 million of capital commitments from its $3 billion third fund, LaSalle Asia Opportunity Fund (LAOF) III, so it could press on with raising the incoming vehicle. The firm is understood to be targeting $750 million for the fourth fund with the capital principally coming from existing investors.