Private equity firm eyes China malls after US$4.5b Hong Kong test run

Hong Kong

PRIVATE equity firm Gaw Capital Partners may move on to buying neighbourhood malls in China after leading groups that snapped up US$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 centres in Hong Kong's public housing estates now bump up against five-star hotels and grade-A office towers in Mr Gaw's US$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 Mr Gaw.

In China, "there are many of these neighbourhood malls - usually developers are not too focused on operating them, so that's something we can eventually move into also", said Mr 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 Mr Gaw.

"Doing what we can to improve foot traffic and improve revenue, so that ultimately we can justify the rent increase."

Yields for neighbourhood malls can be attractive - 3 to 4.5 per cent versus 2.5 to 3 per cent for high street shops and grade A offices, according to Jones Lang LaSalle Inc.

The shopping centres' local focus also makes them immune to declines in tourist spending, according to Tom Broderick, senior director of research at JLL. BLOOMBERG