Investment fund out to make another killing

Veteran industry player Pamfleet partners US group to convert Kwun Tong building

PUBLISHED : Tuesday, 07 May, 2013, 12:00am
UPDATED : Tuesday, 07 May, 2013, 3:56am

Whenever there is risk, there is opportunity - the veteran investor's golden rule in making a killing.

While lots of investors stayed on the sidelines, international private equity firm Partners Group teamed up with Hong Kong-based property investment fund Pamfleet to buy a warehouse in Kwun Tong for HK$958 million.

The joint venture had to pay stamp duty of 8.5 per cent, recently doubled from 4.25 per cent, of the property's value on signing the sales agreement.

Before February 22, buyers had to pay stamp duty only on completion of the deal.

To acquire the 13-storey Kian Dai Industrial Building on Hung To Road, Partners and Pamfleet had to fork out HK$81 million in stamp duty.

The joint venture plans to convert the industrial building into a grade A office tower, offering big firms premium office space at more affordable rents than they could negotiate in Central.

Pamfleet, one of the most successful players in the property market, is an expert in turning old properties into gold.

In 2006, the company teamed up with United States fund Morgan Stanley Real Estate and Gateway Capital to buy the then Hang Seng Building at Des Voeux Road Central for HK$2.25 billion. The consortium repositioned the 45-year-old commercial building with a HK$200 million facelift and renamed it the Nexxus Building.

By enlarging the retail space to five floors from two, it managed to boost rental income and enhance its commercial value.

In 2009, the consortium sold it for HK$3.6 billion, reaping a gain of HK$1.35 billion after pocketing two years of rental income.

During the 2003 Sars crisis, Pamfleet and Morgan Stanley bought Vicwood Plaza in Sheung Wan for HK$842.8 million, or HK$2,128 per square foot.

After spending HK$50 million to renovate the office building, the joint venture sold it to Macquarie Global Property Advisors for HK$2.6 billion. In just three years, the two funds made a gain of more than HK$1.7 billion.

Pamfleet and Partners' plan to reposition the Kian Dai Industrial Building is an attempt to capitalise on the government's push to transform Kowloon East into the city's second core business district. Several real estate funds are looking for similar industrial buildings with potential for renovation but only a few projects have been put up for sale on the market.

After the doubling of stamp duty in February, en bloc property transactions have declined significantly.

Vendors prefer to hold their projects for leasing instead of selling them at a steep discount.

"We only see a few industrial buildings put up for sale, and no sign of a big fall in industrial prices," a property agent said.

But individual owners who own several industrial units have been forced to cut selling prices by 5 to 8 per cent so as to reduce their exposure to the sector, he said.