Property

The heart of the matter

Henderson Land goes all-in on Hong Kong property with a record bet

Central-HendersonLand-w

Indicated in yellow­­: the most expensive piece of real estate in the world

Sitting at the heart of some of the world’s most expensive real estate, World-Wide House (WWH) has been a bit of an outsider for years. Amid a sparkling cluster of grade-A office and luxury retail space in Hong Kong’s Central district, the 40 year-old building is more downbeat, and mostly home to small businesses. Its atrium of shops – across three flours, with no natural light – is rented to mini-stores selling goods and services to the city’s large population of domestic workers from other parts of Asia. Sundays – the day off each week – are the busiest for shopping.

What else marks WWH out as different? Most of the main buildings in Central are controlled and managed by single landlords, like Jardines. The British hong has rarely sold a single unit in its real estate portfolio in Central, holding much of it for decades. In contrast, ownership of commercial units inside WWH, which was first developed by Hong Kong’s richest man Li Ka-shing, has been fragmented from day one. Li sold all of its office and retail space to third parties before it was completed in 1981.

WWH was built on a site vacated by the former General Post Office. Li outbid Jardines in a public tender to redevelop the site in the 1970s in what was the largest property deal in the British colony at that time. The deal helped him to challenge Jardine’s property monopoly in Central, albeit with a very different commercial philosophy (build and sell for a quick profit versus buy and hold for a longer-term rental return).

Li’s WWH victory also symbolised how local tycoons were squaring up to the historical dominance of older, British businesses in the city – coming at a time when the return of Hong Kong to Chinese sovereignty after 1997 was becoming a pressing issue.

Much more recently, the Hong Kong government decided to relocate its General Post Office building once again. The redevelopment in Central has resulted in another record property deal – this time at the hands of a long-time rival to Li Ka-shing’s listed flagship CK Hutch.

The project in question is a 50,000 square-foot plot of land along Hong Kong’s illustrious Victoria Harbour (see photo). The site was put up for sale earlier this year and the government announced last week that Henderson Land, another of the city’s biggest developers, had won the tender with a record-breaking bid of HK$50.8 billion ($6.5 billion). That land price alone amounts to almost a third of Henderson’s market value and the company has estimated that it will need to invest a further HK$13 billion to build three buildings on the site, creating a total floor area of more than 1.6 million square feet (it will include a six-floor aquarium).

When completed the harbourfront complex will be adjacent to Jardines headquarters and the International Finance Centre, which was co-developed by Henderson and SHK Properties in 2003 and is widely regarded as Hong Kong’s most valuable office-retail complex.

The previous record for a property auction of this type was held by SHK Properties, when the blue-chip firm won the tender to develop a prized commercial project above the terminus for the high-speed train line connecting Hong Kong to Shenzhen for HK$42.2 billion.

Henderson is paying a premium close to the top end of the range expected by local analysts. Much of that is down to the rarity of the plot (Hong Kong called a halt on reclamation efforts around Victoria Harbour more than 20 years ago).

But the prime location was also a factor in the choice of winning bidder, the government says, by adding considerations other than price were added to its decision, such as having a “people-centric design”. Of the six bidders, four failed to pass the so-called ‘two envelope’ requirements for both price and design, the local media has reported.

Henderson is outlining plenty of outdoor space around the three towers and a public park that connects through to the harbourfront. “It will be designed with functions that will benefit and radiate to other parts of the city with the ability to evolve and reshape itself over time,” promised Lee Ka-shing, one of the company’s co-chairmen.

“We will use our expertise to give back to society,” he added.

Lee, who has no direct connection to the Li Ka-shing of CK Hutch, took over the running of the group with his elder brother after founder Lee Shau-kee’s retirement in 2019 (see WiC446). Lee Shau-kee and Li Ka-shing were both born in 1928 in Guangdong and were said to be card-playing buddies early on in their careers. But as their businesses grew, rivalry replaced friendship. Gossip among older businesspeople still has it that Lee senior named his younger son after his card-playing pal to commemorate their friendship, however.

In the late 1970s Li Ka-shing had trumpeted his own challenge to Hong Kong stalwarts like Jardines and Swire by winning two major land projects in quick succession: one for the old Post Office site and the other in Admiralty (another business district adjacent to Central which was formerly a military dock).

Henderson has done something similar this time too in adding the Post Office site to an auction win for a prime lot in Admiralty in 2017 for HK$23.3 billion.

The major difference is that Li’s firm offloaded both landmark projects in the 1980s for a quick return. Henderson is unlikely to do the same, planning instead for the longer term to cement its position as Hong Kong’s leading commercial landlord.

The two projects will require a combined investment of nearly HK$100 billion, or enough to buy all the shares of debt-racked developer Evergrande, three times over. Some analysts in Hong Kong have questioned whether Henderson is paying too much for the plot at a time when other parts of the city have emerged as rivals to Central’s prime office space. Others wonder whether the newer trend of working from home will eat into demand for office space over the longer term, driving down commercial rents.

Backers of the bid have brushed these reservations aside, lauding the deal as a clear sign of confidence in Hong Kong’s future as an international financial hub.

Henderson doesn’t seem particularly daunted by the expense, saying that it will look for financing at low interest rates to shoulder much of the financial burden. “With interest rates at such low levels, you could say that we weren’t very good at our business if we didn’t do big projects like these,” Henderson’s managing director Colin Lam told reporters last week.

CK Hutch has shown less interest in bulking up its own property portfolio in the city (it already owns three major complexes in Central). In recent years Li Ka-shing has also been accused by China’s state media of selling down the group’s interests in the mainland as part of an effort to shift more of its asset mix to Britain (see WiC297).

The Henderson bid comes at a time when the Hong Kong government has apparently come under increasing pressure from Beijing to tackle a shortage of residential housing by quickening construction of a huge new town in a large rural area bordering Shenzhen.

Last month’s annual policy address from the government included a commitment to providing nearly a million homes in the New Territories in northern Hong Kong, for instance (a project known locally by the name the Northern Metropolis). The blueprint might take years to finish but analysts are still excited about another opportunity for Henderson to unlock a hidden jewel on its balance sheet: nearly 50 million square feet of land reserve that could benefit from interest in the Northern Metropolis plan (its bank of plots are either inside or adjacent to the new area).


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