‘Depressed moments’: Hong Kong fund seeks £1 billion from Asian investors to acquire UK pub, hotel, housing assets
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The fund, whose backers include the heir of the Sasa cosmetics retail chain in the city, deems it opportune to pick up pubs, hotels and student housing amid “depressed moments” which could deliver an additional 15 to 20 per cent upside in an industry upturn.
“We are already negotiating with a few smaller landlords of pubs and hotels, pubs that have residential units, or a hotel with a master lease and some retail component,” co-founder Timothy Li said. The fund aims to exit from its investments and return the money to investors within six years, he added.
The UK retail property segment had been on a decline even before the pandemic in 2020, according to property consultancy Carter Jonas on May 25. Average rental values dipped 17.4 per cent below their 2018 peak, while interest-rate hikes have also derailed home prices over the past two months, official data showed.
The market pullback has attracted some of Hong Kong’s biggest property investors. CK Asset Holdings, tycoon Li Ka-shing’s flagship entity, last month made a takeover offer of Civitas Social Housing, a UK-listed investment trust with social-care housing and healthcare facilities.
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Chinese developer Chinachem Group last September spent £158.5 million to acquire the Kaleidoscope, an office building in London whose tenants include ByteDance, the Chinese operator of short-video app TikTok.
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Panda Residential’s backers include QF Capital, which was co-founded and led by Patrick Kwok Ho-chuen. Kwok is the heir of SaSa International, a listed retailer with HK$4.5 billion of market capitalisation.
Li said the current high interest rates in the UK had likely diminished the holding power of smaller landlords as income from their properties fell short of the levels needed to service their loans and keep lenders and creditors at bay.
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“Interest rates are the key driver of the sort of mild depression that many landlords are going through” with current borrowing costs at 5 to 6 per cent, Li said. “This means the yield [from the underlying property] will have to be higher, which is a little bit impossible in London.”
The Bank of England has raised its benchmark rate nine times since March 2022, taking it to 4.5 per cent from 0.75 per cent over the stretch. The move to tame runaway inflation was in tandem with the most aggressive policy tightening in the US in more than 40 years.
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Analysts are predicting another hike in the coming weeks, after a higher than expected headline inflation of 8.7 per cent in April, taking borrowing costs to a level not seen since April 2008.
The UK residential property segment has felt the impact of elevated borrowing costs, as a government and a trade group’s indices suggested a declining trend in home prices.
The average price of UK homes fell in April, according to the latest government data. It weakened to £285,000 from £288,000 in March and £293,000 in November. Home prices dropped 0.1 per cent in May, the Nationwide Building Society said.
Panda Residential aims to source investors in Hong Kong, mainland China and Southeast Asia for its UK fund. Road shows are also being lined up in Singapore and some cities in mainland China.
Li said Hong Kong still remains a key potential market for the fund. But as local properties remained relatively more expensive, it means Panda Residential is likely to seek more deals in the UK market.
“In the UK, we are targeting smaller properties between £5 million and £20 million per deal,” Li added. “In Hong Kong, we are targeting the more expensive stuff, so by nature we will need to be more specific on our targets in Hong Kong.”
