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Phoenix generates 53% gross IRR on HK exit– Exclusive

The Hong Kong-based private equity real estate firm has agreed to sell a development site in Hong Kong for approximately $151.3 million.  

Phoenix Property Investors has agreed to sell 232 Wanchai Road to a subsidiary of Continental Holdings, a Hong Kong-based property investment company, for approximately $151.3 million, generating a 53 percent gross internal rate of return.

PERE understands that the investment – essentially a site assemblage project – was jointly acquired by Phoenix Property Investors via its fifth Asia opportunity fund, and CSI Properties through a 50:50 partnership. After the vacant possession of the property was obtained in first quarter of 2016, the plans for commercial redevelopment were put in motion.

According to one source familiar with the deal, Phoenix’s original investment program was to exit only after the completion of the building. Instead however a sale was initiated 23 months earlier after the firm received an offer for the bare site.

With the early exit, Phoenix Property Investors has been able to generate a gross post-tax IRR of 53 percent and an equity multiple of 1.93.

Favorable market sentiment in addition to a below-market price purchase and the development potential of the site helped Phoenix achieve returns higher than its 20 percent target, the source added.

According to property consultancy CBRE’s second quarter report, despite a slowing in the leasing momentum in the Grade A office sector, low vacancy continues to support rental growth.

Overall, rents in Hong Kong are estimated to have increased 0.7 percent quarter-on-quarter, while rents on Hong Kong Island increased by 1 percent in the second quarter.
The sale marks the sixth exit from the Phoenix Asia Real Estate Investments V, which the firm closed on $750 million at the end of 2013. The firm has made 19 investments so far and around 90 percent of the fund’s capital has been deployed.

Phoenix was unable to comment as of press time.