MGPA has an original angle on a property sale

May 12, 2010

Property fund advisor MGPA has sold 181 Queens Road Central, Hong Kong on behalf of MGPA Asia Fund II in a rather unusual way.

Property fund MGPA has just sold an office building in Hong Kong on behalf of its MGPA Asia Fund II. The Cosco Tower is located at 181 Queens Road Central.

This deal has not come to public attention. Ostensibly, it is just an asset disposal of a 29-storey grade B+ office building with three levels of shops, and you'd probably walk right past the lions sitting outside its front door.

However, there is a unique angle to this sale that is worth mentioning.

The building has been sold via an individual strata sale. That means that you could have bought your own entire floor (thereby solving the problem of dealing with a rapacious landlord). It is rare in Hong Kong for an office property to be sold 'en bloc' on a strata basis.

What MGPA did was to build a book of pre-commitments to buy the lower third of the property (the less desirable floors), before selling the higher floors publicly. That process created an environment in which prices on the mid- and high-zone floors could be ratcheted upwards.

The decision to sell the property was accelerated given the uncertainties in the financial markets at the time and concerns around the pending refinancing of an existing loan.

"The property was acquired as a long-term investment in May 2006 when it was significantly under-rented," says Simon Treacy, MGPA's CEO of Asian investments who is based in Hong Kong. "Reversionary value was realised through active asset management which led to the doubling of rents over the hold period and an improved tenant profile."

The property sold within two months of launch to multiple buyers. According to MGPA, the property was acquired for HK$2.4 billion and realised a total sale value of HK$3.4 billion at an average yield of 3.4%, achieving an internal rate of return of 20% and a equity multiple of 1.7 times.

MGPA was founded by Jim Quille in 2004. Today it is owned by its executives (who bought out the firm originally from Lend Lease), together with Macquarie Group. MGPA manages $10.4 billion in assets through several property funds. Its $480 million Global Fund 1 was liquidated in 2009. During its 10-year life, it delivered an IRR to investors of 20%. Still running are its Global Funds II (in which Cosco Tower once reposed) and III, in addition to its MGPA Japan Core Plus Fund.