Souring sentiment snares buyers of world’s costliest office tower
A decision by buyers of The Center to use bonds to finance the US$5.2 billion deal could backfire
Four months ago, when a consortium of 10 wealthy investors settled on a financing deal by selling two tranches of 18-month bonds to raise the funds to close the HK$40.2 billion (US$5.2 billion) purchase of the world’s most expensive office tower, they felt they were sitting pretty.
They believed the innovative funding method they chose, bypassing Hong Kong’s commercial bank lending restrictions, would give them enough time to refinance, or resell some floors of the 73-storey office tower, The Center in Hong Kong’s business district, and it would deliver a chunky profit.
However, it has not worked out quite as they hoped. The dark clouds of the US-China trade war, interest rate rises and falling stock markets have combined to harm overall investor sentiment. For these investors who are bearing high interest rates through the bond issue, they are under mounting pressure to sell.
“The market is a bit down. Fast action to sell is a wise choice,” said James Mak, district sales director at property broker Midland Commercial.
“But now they may well find financing from any bank very difficult,” Mak said. “If they do not move fast, prices will continue to drop and they could lose money on the deal.”
The consortium’s bond issue provided up to 80 per cent of the loan-to-acquisition value (LTV), doubling the 40 per cent LTV that applies to bank loans sanctioned by the city’s monetary authority.
Arranged by Morgan Stanley, the funding package required the consortium members to put up the capital equivalent of just 20 per cent of the purchase.