Brookfield buys Shanghai project from R&F, KWG

Brookfield expands multi-family projects in China

Brookfield capitalized on the potential of China’s rental housing market and the financial distress of some of the country’s largest developers to acquire a serviced apartment project in Shanghai’s Yangpu district for RMB 1.26 billion ( $180 million) as the first property in a new family multi-project line.

“Our Jiayu project is the first to launch with our new ‘Blinq’ brand which will focus on mid- to high-end projects,” Brookfield managing partner and head of Asia real estate Stuart Mercier told Mingtiandi. The Canadian fund manager is acquiring the 42,000 square meter (452,084 square foot) complex from heavily indebted Chinese developers Guangzhou R&F Group and KWG Group Holdings.

With more than 70,000 multi-family units and more than $22 billion in assets under management in the sector globally, Brookfield pointed to the non-resident population of more than 10 million people in China’s commercial capital as a driver of the rental market. “Shanghai is a destination for young talent and has high barriers to home ownership, which is driving rental demand,” Mercier said.

Brookfield revealed the acquisition on its official WeChat channel last month and confirmed the identities of the sellers on Thursday after JLL announced that it had brokered the sale on behalf of Guangzhou R&F and KWG. Sources familiar with the transaction confirmed to Mingtiandi that the asset changed hands at around RMB 30,000 per square meter, bringing the transaction consideration to around RMB 1.26 billion.

Neither Guangzhou R&F nor KWG Group made any disclosure regarding the sale of assets.

Upscale Community

Jointly developed by R&F and KWG Group and previously operated by R&F Shanghai, the Jiayu Project is located in Xinjiangwan, an area adjacent to a cluster of universities and high-tech corporate campuses such as Tishman Speyer’s The Springs in the Wujiaochang area of ​​Yangpu District, north of the city. center.

Stuart Mercier of Brookfield Asset Management

The sold project includes three apartment buildings which are expected to provide around 560 apartments, according to Brookfield’s earlier statement on WeChat. Once the transaction is complete, the property will be renamed Shanghai Wujiaochang Blinq Executive Apartment (Blinq Wujiaochang), Brookfield said.

Blinq Wujiaochang’s first 100 rental apartments opened this month, and the remaining units will be made available during the fourth quarter of this year and the second quarter of 2023, according to a press release from JLL.

The asset previously belonged to the commercial element of a multipurpose joint venture between R&F and KWG named Amazing Bay, according to a report by Guangzhou Times Media. The two developers had bought a 70% stake in the Amazing Bay site from US developer and fund manager Hines for $353.5 million in 2010 and a further 30% from state-owned Shanghai Chengtou Cityland (Group) Co Ltd for 1 billion yuan ($142 million). ) in 2011, according to the report.

Chinese developers in difficulty

Guangzhou R&F, China’s 40th-largest developer by contract sales attributed to shareholders in the first half, and KWG Group, ranked 45th by the same metric, both struggled to repay debt as revenues tumbled during the housing slowdown in China.

Wujiaochang

The project is located near Wujiaochang area in Yangpu

In December, R&F sold its remaining 30% stake in its R&F Integrated Logistics Park at Guangzhou International Airport to Blackstone for RMB3.4 billion, after completing its $1.1 billion sale of 70% from the distribution center to the US fund manager in January.

In May, R&F sold its 50% stake in Thames City, a London-based joint venture with fellow Chinese developer CC Land, to the latter company’s chairman for HK$2.66 billion, and recorded a loss of HK$1. HK$.84 billion on this sale.

Earlier this month, the developer sold 100% of its stake in its Wanda Realm Beijing hotel to a unit of Beijing Pengrui Real Estate for 550 million RMB ($79 million).

KWG also conducted a fire sale to bolster its finances. Earlier this year, it set up a key account sales team to promote bulk sales of office buildings in some non-core areas of Guangzhou, Beijing and Shanghai, the developer said in its interim report.

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In July, KWG sold a 50% stake in a residential project in the Kai Tak area of ​​Hong Kong to its partner Longfor Group for HK$1.3 billion.

These sales coincided with the two companies recently reaching agreements to restructure their offshore debt.

With JP Morgan as agent for the two firms’ debt restructuring, R&F in July pushed back the deadline for 10 offshore bonds totaling $5.1 billion from three to four years, while KWG last week secured consent investors to swap $1.6 billion in short-term notes for new debt at longer maturities.

The rental is coming to town

The value of Brookfield’s Yangpu Award stems from the fact that real estate prices in major Chinese cities have become among the least affordable in the world, with rental gradually gaining favor with young professionals.

In raw numbers, the rental housing project sector accounted for 15% of new real estate developments in China during the second quarter, compared to 7.6% in 2021, according to JLL. Recently established affordable housing REITs in China offer a potential exit channel for investors in the sector.

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“China continues to introduce favorable policies for the rental housing sector. We have seen strong interest from more diversified investors in this market. As housing REITs are introduced, the rental housing market will become more active in the future,” Sun Ling, head of capital markets for JLL East China, said in a statement on Thursday.

Three REITs with public rental housing projects in Xiamen, Shenzhen and Beijing as their underlying assets hit the 30% limit on the first trading day when they debuted in China last month. The three listed trusts were each oversubscribed more than 100 times among institutional investors and raised a total of RMB 3.8 billion based on Reuters calculations.

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