The East Tower of One HarbourGate: A Potential Acquisition Amidst Market Challenges
The East Tower of the One HarbourGate complex, located in Hung Hom, Hong Kong, is currently at the center of significant real estate negotiations. China Mobile, the mainland telecom giant, is reportedly in discussions to acquire this grade A office building, which has seen a staggering decline in value over the past two years. Once valued at HK$7 billion (approximately $895 million), the property is now being offered for a price that could reach up to HK$3 billion ($385 million), reflecting a 57% drop in valuation.
A Shift in Ownership
The East Tower was previously the headquarters of the Cheung Kei Group, a mainland property firm that has faced severe financial difficulties, leading to defaults and the seizure of its assets. The building was repossessed by creditors last year as the company struggled with a liquidity crisis. Cheung Kei Group’s chairman, Chen Hongtian, had acquired the property in 2016 for HK$4.5 billion, a price that now seems exorbitant in light of the current market conditions.
Market Conditions and Challenges
Hong Kong’s office market is currently grappling with a prolonged slump. Recent reports indicate that the total amount of leased office space in the city contracted by 57,500 square feet in September, with average rents declining by 1.1% from the previous month. The average monthly rent in the Hung Hom area now ranges from HK$20 to HK$30 per square foot, which poses challenges for potential investors like China Mobile.
Analysts have pointed out that the current leasing rates and the outstanding loan amount of HK$4.2 billion on the building create significant hurdles for any potential sale. With an investment yield of no more than 3.5% at full occupancy, the cap rate falls below current financing costs, making the investment less attractive.
The Property’s Specifications
The East Tower spans 17 stories and encompasses approximately 279,000 square feet, including 254,000 square feet of office space and a 26,000 square foot retail podium. Currently, it serves as the headquarters for Canadian insurer Sun Life’s Hong Kong operations. As of May last year, the building was reported to be 84% occupied, but the ongoing economic challenges could further impact its occupancy rates.
A Second Attempt at Sale
This potential acquisition marks the second attempt to sell the East Tower since it was seized. The first marketing effort, launched in July 2023, followed a failed tender process in August 2022. The property has been marketed by Savills, which has noted the significant drop in capital values for grade A offices in Hong Kong, which have plummeted by 41.6% since their peak in 2019.
Broader Implications of Financial Distress
Chen Hongtian’s financial troubles extend beyond the East Tower. His luxury residences in Hong Kong have also been seized, and his global assets, including properties in London, are under receivership. The financial strain on Cheung Kei Group has led to a wave of asset seizures, with creditors taking control of properties that were once considered valuable investments.
Conclusion: A Complex Landscape
As negotiations between China Mobile and the current owners of the East Tower continue, the future of this property remains uncertain. The challenges posed by Hong Kong’s office market, coupled with the financial struggles of Cheung Kei Group, create a complex landscape for potential investors. While the East Tower presents an opportunity for acquisition at a significantly reduced price, the broader economic conditions and the building’s financial obligations will play a crucial role in determining the outcome of this potential deal.
As the situation develops, stakeholders will be closely monitoring the negotiations, which could set a precedent for future transactions in Hong Kong’s beleaguered real estate market.
