Private Equity Firm Eyes China Malls After $4.5 Billion Hong Kong Test Run

(Bloomberg) -- Private equity firm Gaw Capital Partners may move on to buying neighborhood malls in China after leading groups that snapped up HK$35 billion ($4.5 billion) of the properties in Hong Kong in less than two years.

“Once we have learned how to do it right, I think we can actually scale this,” Goodwin Gaw, chairman and managing principal of the firm, said in an interview in Hong Kong.

Less-than-glamorous shopping centers in Hong Kong’s public housing estates now bump up against five-star hotels and grade-A office towers in Gaw’s $18 billion global real estate portfolio. The properties are a “defensive” play because local communities rely on the shops for daily necessities, limiting the malls’ vulnerability to e-commerce, according to Gaw.

In China, “there are many of these neighborhood malls -- usually developers are not too focused on operating them, so that’s something we can eventually move into also,” said Gaw.

In Hong Kong, the firm led groups that bought 17 malls from Link REIT in 2017 and completed the acquisition of another 12 last week. While the purchases may have secured lucrative yields, they’ve also put the firm in the local political spotlight after tenants and politicians complained about rent increases.

“There will be complaints -- the only thing we can do is to do our part: upgrading the malls, putting in more facilities, like sports facilities,” said Gaw. “Doing what we can to improve foot traffic and improve revenue, so that ultimately we can justify the rent increase.”

Yields for neighborhood malls can be attractive -- 3 to 4.5 percent versus 2.5 to 3 percent for high street shops and grade A offices, according to Jones Lang LaSalle Inc. The shopping centers’ local focus also makes them immune to declines in tourist spending, according to Tom Broderick, senior director of research at JLL.

--With assistance from Vinicy Chan and Frederik Balfour.

To contact the reporter on this story: Shawna Kwan in Hong Kong at wkwan35@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Paul Panckhurst

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