An office floor in Hong Kong’s Central district has been sold for less than half of its 2018 purchase price, after a bank in the Asian financial hub seized the property from a delinquent mainland fashion tycoon, according to a market source who spoke with Mingtiandi on Wednesday.
A creditor of Qiu Yafu, whose company controlled a flock of fashion brands including Bally and Aquascutum before defaulting on more than $1.3 billion in debt from 2020 through 2022, has sold the 23rd floor of Bank of America Tower for HK$305.36 million ($39 million), according to the source, who confirmed earlier reports in the local press.
The buyer, which is understood to be local agency-turned-property investment firm Winland Group, is picking up the 13,880 square foot (1,290 square metre) property at a more than 56 percent discount from the HK$700 million that Qiu and companies under the control of his Shandong Ruyi Group had paid to acquire it in 2018, according to media reports at the time citing Land Registry documents.
The discounted deal for the grade A property plants a new benchmark of shrinking capital values for strata office assets in Hong Kong, which fell by a further 5.5 percent in the third quarter, compared to the preceding three months. That decline marked an acceleration from the 1.9 percent slide recorded in the second quarter, CBRE estimates showed on Wednesday.
Fashion Faux Pas
Shenzhen-listed Shandong Ruyi Technology Group was once China’s biggest garment maker and Qiu had sought to transform the firm into China’s LVMH through $4 billion in overseas acquisitions from 2015 through 2019, with the Bank of America floor intended as the company’s international headquarters.
However, after picking up brands like Lycra and Gieves & Hawkes, Shandong Ruyi defaulted on a $153 million bond in 2020 and by late last year had already seen a number of its fashion assets seized by creditors as its defaults climbed to $1.3 billion.
By November of last year receivers hired by the fashion group’s creditors had engaged Savills to market the Bank of America Tower floor, together with three parking spaces included in the eventual sale, at HK$500 million. Savills is also thought to have represented the creditor in the eventual sale, although sources at the property agency had not responded to inquiries from Mingtiandi by the time of publication.
Located at 12 Harcourt Road in Hong Kong’s traditional commercial hub, the Bank of America Tower is within a few blocks of both the Central and Admiralty MTR stations, and is neighbours with new office landmarks Cheung Kong Centre II and The Henderson.
At the reported pricing, Winland is paying around HK$22,000 per square foot for its 13,880 square foot (1,290 square metre) slice of the 38-storey tower, after Qiu was said to have paid over HK$50,000 per square foot at the height of the market in 2018.
In 2018, Winland had purchased 96 percent ownership of the Sun On Mansion in Causeway Bay from New World Development for HK$2.17 billion (then $280 million) and the following year applied for a compulsory sale of the remaining space in the property as it sought to develop a new commercial tower on the site.
Winland had not responded to inquiries from Mingtiandi regarding this latest acquisition by the time of publication.
Office Market Still in the Doldrums
The cut-rate sale in Central is being reported as CBRE estimates that capital values for Grade A strata offices in Hong Kong will have dropped by as much as 10 percent by the end of 2023 compared to a year earlier, due to higher interest rates and challenging economic conditions.
That gloom comes despite trades of office assets across Hong Kong leaping to HK$1.56 billion in the third quarter, which was up 42 percent from the HK$1.1 billion worth of trades in the preceding three months, according to the property agency. Despite the uptick, last quarter’s investment volume was still a third below the HK$2.3 billion notched in the first quarter of the year.
“Professional investors were mostly on the side assessing various market trends while less yield-sensitive end-users were more active looking for discounted assets. While borrowing costs are expected to stay at high levels for longer, the investment market will likely remain overall quiet for the remainder of the year,” said Reeves Yan, executive director and head of capital markets for CBRE in Hong Kong.