Court-appointed receivers have put up for sale the Frank Gehry-designed Hong Kong apartment owned by mainland tycoon Chen Hongtian.
Commercial brokerage Savills is the agent orchestrating the sale by tender of the fifth floor of Opus Hong Kong, one of the city's most-glamorous residential buildings. The mid-rise complex sits overlooking the Happy Valley racecourse and Victoria Harbour from Stubbs Road, on the site of the former mansion for the head of the Taikoo dockyard at the conglomerate Swire (SWRAY) .
One strange aspect of the forced sale is that the apartment is valued at HK$680 million (US$86.8 million), but was bought in September 2015 for HK$387 million. That the owner can't simply sell for a profit shows that his debt problems extend far beyond this home.
Opus spirals as the building goes up in a design that Gehry says is inspired by the twisting stalks of bamboo. The "starchitect" showed me and a group of reporters around the project when it completed in 2012. The wraparound teak-lined balconies are a nod to the nautical history of Swire, one of Hong Kong's venerable "hongs," or trading houses dating to the 19th Century.
Chen's 5,154-square-foot whole-floor flat has five bedrooms and comes with two parking spaces. Those are much-prized in a city where a place to park your car can cost as much as an apartment in many other cities.
Chen made his money investing in property in Shenzhen, the "Silicon Valley" of China just across the border from Hong Kong, as well as Zhuhai just next to Macau. He was living in the Opus apartment but made the then-record purchase for HK$2.1 billion (US$268 million) of a home on Victoria Peak, complaining publicly that the Opus flat was "too tiny."
The Opus apartment was seized by the mortgage issuer, the Bank of Communications (BCMXY) , in February. The house on Gough Hill Road on the Peak, which Chen planned to knock down and rebuild, was seized by the Bank of East Asia (BKEAY) in March, the same month that Hang Seng Bank (HSNGY) seized a commercial tower he held in Hong Kong.
The forced sales illustrate the immense challenges facing China's property industry as it is compelled to delever under the directive of the Chinese Communist Party. The introduction of the "three red lines" in August 2020 set in motion a downward spiral for the Chinese property market as developers were forced to sell off properties to come under the new capital requirements. That in turn shook public confidence that the companies could deliver on projects bought "off-plan," by putting down deposits on apartments that are yet to be built.
Receivers on Monday also put up for sale an entire commercial block on the Victoria Harbour waterfront after seizing it from Chen. The building, One HarbourGate East Tower, was previously known as the Cheung Kei Center, carrying the name of his property-investment and private-equity company.
The building was valued last year at HK$7 billion (US$894 million), according to Savills, which is also the agent on that sale. The Kowloon project has 279,000 square feet of commercial space in an 18-floor office building, a two-floor retail "villa" on the waterfront, and 155 car-park spaces. Chen bought the project in 2016 for HK$4.5 billion (US$575 million) from its developer, Wheelock (WHLKF) .
The building is still listed as the Hong Kong Cheung Kei Center on the English-language version of the company's Web site. Chen made the home and office purchases through companies he controls.
Chen was born in the Guangdong Province city of Foshan and started his working life as a tailor. He turned to textile manufacturing, then began investing in property in Shenzhen. He has mainly bought completed projects and attempted to sell them at a profit rather than building projects himself.
Chen was prescient in 2016 when he told Forbes that he felt "the government did not like real-estate developers, and the public also did not like developers." He focused on short-term quick sales of residential property while holding onto commercial buildings for the long term. The tycoon is politically well-connected in both Shenzhen and Hong Kong, serving on the national committee of the Chinese People's Political Consultative Conference, an advisory body that's one of China's "Two Sessions" parliament.
But those connections have not protected him during the crackdown on heavy borrowing. The downturns in residential and commercial values have combined with rising interest rates in Hong Kong, where the currency is pegged to the U.S. dollar. Banks therefore "import" U.S. rate rises. Chen was no doubt highly levered in buying his property holdings, a strategy that worked well when markets were rising but quickly bites when capital values and rents decline.
Agents say the forced sales are isolated issues. The Opus flat is being sold on an "as-is" basis and without vacant possession -- meaning someone is living there. The Hong Kong property market has shown signs of life and rising values to date this year, so it remains to be seen if Chen can hold onto other parts of his empire before more of his holdings implode.