Gaw Capital ready to sell Beijing complex, sources say, in what would be the biggest property deal in China’s capital city this year

Hong Kong-based Gaw Capital Partners is ready to sell a Beijing landmark complex to a Chinese firm backed by property tycoon Zuo Hui, two sources said, pocketing a handsome profit after acquiring the asset just over four years ago from Hong Kong mogul Richard Li Tzar-kai and upgrading it.

Beijing Yuanjing Mingde Management & Consulting Co., a Chinese company backed by Zuo, will purchase Pacific Century Place, a complex in Beijing’s ritzy Sanlitun area, with a price of about 10.5 billion yuan (US$1.5 billion), according to one of the sources familiar with the matter. That would be an increase of about 60 per cent over the original purchase price, without counting the costs of the substantial upgrade.

The sales agreement – which, once inked in, would be by far the biggest property deal in Beijing this year – shows that despite a slowing economy and tight funding conditions, properties located in prime areas of the nation’s capital city of Beijing remain hotly sought-after trophy assets for international and domestic investors.

It also underscores the financial muscle of Chinese home-grown companies: Zuo is the chairman of Beijing Homelink Real Estate Brokerage Co, China’s biggest realtor, which controls a matrix of property investment and management companies, including Ziroom, China’s largest rental flat operator, and Homelink, the country’s largest property agency. Both Homelink and Ziroom have raised funding from high-profile companies, such as China’s Tencent and US private equity firm Walburg Pincus, and have ambitious IPO plans.

The sale of Pacific Century Place comes as offshore investors are reaping megadeals in China’s commercial property sector, taking advantage of Chinese investors’ weakness in financing and strict scrutiny. Just last week, Gaw said it had partnered with the Vancouver-based QuadReal Property Group to acquire a 25-storey grade A office building in central Shanghai, a deal estimated to valued at 3 billion yuan.

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And on Tuesday, Hony Capital, a private equity firm under Legend Holdings, said it had partnered with a foreign investor to acquire a landmark building in central Beijing. Sources told the South China Morning Post that AEW Capital Management, a Boston-based firm, partnered with Hony to buy it for about 5 billion yuan. That was the biggest deal this year, before the Pacific Century Palace one. In less than a month, overseas investors have splashed more than 28 billion yuan in at least six publicly announced deals – excluding the Pacific Century Place deal – according to the Post’s tally.

Gaw acquired the property for US$928 million in April 2014 from tycoon Li’s Pacific Century Premium Developments.

Founded in 2005, Gaw Capital had assets under management totalling US$17 billion in the first quarter of this year, including residential, retail malls, hotel and commercial properties. It also made direct investments and led a consortium with partners US investment bank Goldman Sachs and China Great Wall Asset management in the purchase of the malls for HK$23 billion late last year.

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Gaw declined to comment, and Zuo was not available for comment. Beijing Yuanjing company did not reply to a request for comment.

Bloomberg reported in June that Zuo was in advanced talks to acquire the property for about 10 billion yuan, but Gaw declined to comment. Meanwhile, Homelink, the biggest company under Zuo, said it was not aware of the talk.

Beijing Yuanjing Mingde was set up in January of this year with its business listed as corporate management consulting, according to China’s industrial and commercial registration information platform. Zuo holds 72 per cent of the company through a Tianjin-based consulting firm.

The company’s chairman is Tao Hongbing, who had been Homelink’s senior vice-president.

Gaw Capital is known for redesigning and repositioning under-utilised real estate assets, such as its upgrade of Pacific Century Place.

The 170,000 square metre mixed-use project previously comprised two office buildings, two serviced flat blocks and a department store centre.

Gaw transformed the 75,000 square metre old-fashioned retail space into a brand new office and retail landmark. It broke down the original monolithic site to create eight “mini blocks” of retail and lifestyle workspaces, and redeveloped the main entrance into a new glass matchbox design.