How a Family Turned a Barren Hillside Into a $4.4 Billion Property Empire
(Bloomberg) -- The Kadoorie family is proving that anything’s possible in Hong Kong’s property market.
By turning a barren hillside into a multi billion-dollar fortune, they’ve shown what quiet perseverance can accomplish in a world where brash millionaires are increasingly being minted overnight.
The Kadoories’ propensity to hang on to and nurture assets has allowed them to amass a trove of trophy landmarks, from The Peninsula hotel to the city’s 125-year-old Peak Tram. Now, Bloomberg calculations based on estimates from three independent realtors reveal that the combined value of a huddle of residential properties on the Kowloon Peninsula, held by the family for more than 80 years, could be as much as $4.4 billion, bumping Michael Kadoorie’s net worth up to $11.3 billion and making him the sixth-richest man in Hong Kong, behind Henry Cheng and Raymond Kwok.
Their history in the far East can be traced back to the 1880s, when Sir Elly Kadoorie, and his older brother Ellis, Baghdad Iraqi-born Jews arrived in Hong Kong to work for another prominent family of the Baghdad Jewish diaspora, the Sassoons. They later set up a brokerage that enabled them to build up stakes in hotels, banking and power generation facilities. In 1922 Ellis died a bachelor, leaving Elly to carry on the family name. In 1931 he had the foresight to buy a large plot of land near Mong Kok. It cost HK$326,000 ($41,530) or about $200,000 based on the Silver Standard exchange rate at the time, and there wasn’t much there save a few scrubby trees. Today, it’s a verdant oasis, just a stone’s throw from one of the most densely populated neighborhoods on Earth. That’s par for the course in Hong Kong, where the yawning gap between the haves and have-nots is immediately visible. House prices in the city have risen 167 percent over the past decade, making it the world’s least affordable.
The original plan was to offload the houses as they were completed, but by 1935, because only two plots had sold, the family decided to lease the properties and keep building new ones over time. By 1941, 34 houses had been constructed, and were occupied throughout the war by the Japanese army — which did not pay rent — while Elly’s family was interned.
Building resumed after the war and now, stately white houses peek from behind high, bougainvillea-laced walls. Kadoorie Estates spans eight hectares and each of the 85 stand-alone residences (plus one management office) has its own garden, some with pools. There are also 39 colonial-era apartments.
They’re home to a mix of corporate and high-net-worth individuals, with a handful of media and music celebrities (Hong Kong actor and singer Andy Lau lives there) thrown in. Many tenants are long-term residents; in some cases, their occupancy exceeds 30 years.
The average rent of these houses was about HK$100,000 to HK$200,000 seven or eight years ago,” said Nick Colfer, a director of the Kadoories’ family office Sir Elly Kadoorie & Sons Ltd. Now, it’s about HK$300,000.
It’s a nice source of additional income for Michael Kadoorie, 77, and his brother-in-law Ronald McAulay, 82, who combined are worth around $18 billion. Theirs is old money, created by Michael’s grandfather Elly in Shanghai and Hong Kong, where the family maintains its base to this day. Despite their massive fortunes, the Kadoories maintain a low profile, which sets them apart in a town where wealth is openly flaunted.
The family has kept copies of the site’s rent rolls over the years and they make for fascinating reading. The first entry is 1936 and shows a monthly rental payment of HK$150 for one dwelling. By 1969, the group’s total monthly rental income had jumped to HK$177,920 for 79 houses and 39 apartments, and was at HK$920,000 for 80 houses plus the units by 1975.
When a tenant from the close-knit community leaves and a freshly renovated house goes back on the market, the rental cost to the next person could be as much as 40 percent higher, Colfer said.
“These luxury houses are in a prime location in the center of Kowloon and in a tranquil neighborhood,” said Keith Siu, an analyst at real estate advisory firm RHL International. “The fame of the Kadoorie family could also add value to the properties.”
The latest deal on record in the neighborhood was for a house not owned by the Kadoories that went for HK$150 million in February last year. Colliers International Group Inc. estimates a 4,300-square-foot house on Kadoorie Hill could cost anywhere from HK$144 million to HK$288 million, and yield a gross rental return of 2.5 percent.
As well as its privately held property trove, the Kadoorie family also controls publicly traded CLP Holdings Ltd., Hong Kong’s biggest power supplier, and has stakes in CK Hutchison Holdings Ltd., Hong Kong Aircraft Engineering Co., Tai Ping Carpets International Ltd. and a 59.3 percent interest in Hongkong & Shanghai Hotels Ltd., operator of The Peninsula Hotels group. New Peninsula properties are going up in London, Istanbul and Yangon.
Hong Kong Engineering & Construction Co., the company that acquired Kadoorie Hill in 1931, did so in conjunction with the French Missions Étrangères. The Roman Catholic missionary took about 22 percent of the total, which it later sold to private owners.
Bloomberg visited one of the estate’s newly renovated villas in June. The as much as HK$15 million refresh included installing a lift, a spa room, new kitchen and guest powder room in Tiffany blue. The residence’s period fireplace and wooden parquet floors have been preserved. Even before renovations were finished, it was rented for more than HK$300,000 per month.
Chances are, those properties will remain with the Kadoories for generations to come.
“You have a family that owns an asset and expects to own that asset in 100 years,” said Mark Clifford, executive director of the Asia Business Council who is writing his doctoral dissertation on the family. “You feel this ethos of stewardship and care.”
©2018 Bloomberg L.P.