Last month, a record was broken in China. The $928 million purchase of Pacific Century Place in Beijing by Hong Kong-based Gaw Capital Partners and Switzerland’s Partners Group was the biggest single-asset transaction by foreign private equity real estate investors in the country to date.
One would have thought a deal of this magnitude has been well trailed in China. However, despite the size, it managed to stay well below the radar. Few even knew the asset was for sale at the point it traded.
Speaking of the transaction, principal and co-founder Goodwin Gaw said he received a tip from a broker that this time the property was likely to sell. It had been, as he explained, repeatedly brought to the market over a five-year period by its owner, Pacific Century Premium Developments, which is part of Hong Kong-listed communications technology company PCCW.
However, even though a sale had come close on several occasions, nothing ever materialized.
“We already had done a lot of homework on the asset that allowed us to feel comfortable with the deal,” explained Gaw. The next step was to secure financial partners. “Even for a large fund like ours, this deal needed co-investment capital,” he added.
Gaw therefore approached investors within its $1 billion Gateway Real Estate Fund IV to augment the fund’s uncommitted capital, and that was when Partners Group joined the deal. Within weeks, other investors also had completed their due diligence and joined. “I was actually a little bit shocked that we were able to pull it off so quickly,” Gaw said.
Gaw’s Fund IV is now 50 percent invested with this deal, while Partners’ share of the capital came from several of its global and regional real estate funds. The purchase price included 50 percent gearing.
The 1.8 million-square-foot mixed-use property comprises two office towers, two serviced apartment towers and a shopping mall. Connected directly to Beijing’s subway system, Pacific Century Place is located on the city’s third ring road near the central business district and also is close to Beijing Airport.
“This is a rare opportunity to be able to acquire such a large cash flow asset in a prime and irreplaceable area in Beijing,” Kenneth Gaw, Goodwin’s brother and firm co-founder, said. “Its diverse cash flow stream with retail, office and residential elements provides excellent downside protection.”
Despite its lofty price tag and central location, Gaw said the acquisition sits firmly within its value-added strategy. He said the property needed “tender, loving care” to be stabilized, something the firm believes it is able to do within around 18 months. The retail portion, in particular, has been empty for almost two years but, by making this component “trendier”, the firm hopes it soon will be able to fill it with occupants.
To that end, Gaw has budgeted an additional $100 million of capital expenditure to ensure the job is done correctly. If successful, the new owners will be able to demonstrate diversification within the asset, pulling in revenue from retail, office and residential occupiers. Clearly they recognize, having set the record in China, that now the hard work begins.