Hong Kong’s houses on a hill

If the walls of 27 Lugard Road could talk, this two-mansion asset overseeing Hong Kong’s Victoria Harbor might give a sad sigh and lament how its old elegance has faded.

Chinese conglomerate HNA Group unloaded the two historical homes for HK$550 million ($70 million; €63 million) at a 22 percent loss in April. The colonial era properties, held by HNA for just one year, are suffering from a combination of a slower market and HNA’s struggle for liquidity.

The neo-classical homes once stood as a monument to the wealthy, European ruling class in Hong Kong. Standing on the highest hill on Hong Kong Island, 27 Lugard Road and other mansions at Victoria Peak were exclusive residences reserved for non-Chinese until 1930. Built in 1914, 27 Lugard Road was designed by Lenox Godfrey Bird, who served as commandant of the Hong Kong Volunteer Defence Corps, as well as senior partner of architectural firm Palmer & Bird and a director of private investment firm Shek O Development Co. The land was bought by Bird’s older brother, Herbert William, for $2,160 that year at a public auction.

In 1930, the Taikoo Dockyard and Engineering Company of Hong Kong Limited bought the two-story mansion to house the company’s staff and family. The structure survived several misfortunes over subsequent years – the most notable a typhoon in 1939 and a Japanese bomb in 1941. The old tennis court, where one of the company families supposedly hid the family silver, was badly damaged as a result of the blast. It is now the site of a swimming pool.

The colonial era properties… are suffering from a combination of a slower market and HNA’s struggle for liquidity

Robert Luster, who acquired the house in 1977, tried to restore the asset, which distinguished itself as a rare colonial hill residence built before World War I. Luster added three new chimneys and lowered the ceilings to incorporate plumbing and a central air conditioning system. He also took wood from the Hong Kong Club to replace the banisters of the main staircase and revamped the steel window frames with teak, according to a historic building appraisal document from 2013.

In 2012, developer Crown Empire paid HK$384 million for the mansion with intentions to turn the nearly 100-year-old asset into a boutique hotel. Despite protests from the district council, Crown Empire received project approval on the condition that it would preserve the heritage buildings. Crown Empire proposed to add a maximum of 17 guest rooms, an exhibition space on the ground floor and five parking spaces outside.

After many starts and stops in trying to meet the guidelines put forth to ensure historical preservation, Crown Empire sold the residence to Chinese conglomerate HNA Group in January 2018 for HK$710 million. Unfortunately, HNA soon after faced troubles of its own unrelated to the condition of the historic home. The once aggressive real estate buyer received orders from Chinese regulators to unwind its highly leveraged positions. HNA’s total debt reached around 598 billion yuan ($94 billion; €79 billion) by the end of 2017 – up 21 percent year-on-year, according to a report from April 2018.

After selling several of its trophy assets, including a New York office tower at 850 Third Avenue and the Shanghai Yangtze International Enterprise Plaza office in January, HNA also unloaded its investment in 27 Lugard Road. The firm sold the mansion, which has yet to complete its transition into a boutique hotel, in April 2019 for approximately HK$550 million, according to data provider Real Capital Analytics. It was a final transaction price approximately 29 percent lower than the HK$780 million asked for last year, according to media reports.

HNA ultimately took a loss on this house on a hill, but its walls would argue that such misfortune pales in comparison to some of its more dramatic earlier chapters. Whether future chapters will tell of guests enjoying stays at the property, or only reveal more planning headaches, remains to be seen.