hello pezz, today's report:
on this second day of a 4-days easter weekend (we in hk work 24/7 full-on, either tasking or thinking), i signed for and on behalf of our gold citadel property club a preliminary sale & purchase agreement to acquire an industrial property comprised of most (4 out of 6 units) of one floor in a 22/F building with a big footprint located in what will be the future end of the line of the extending subway, which, most people expect, should open up the neighborhood to robust redevelopment.
the building is located so few minutes to the tunnel that connects the southside of hong kong to its retail core, and not a lot of minutes to the entrance of the subway extension will connect the neighborhood to hong kong's financial heart.
six hotel projects have been announced, and one, fortunately, will be just two doors away.
the building is within walking distance to the nice enough ocean park and its shark pool, multi-level aquarium, pandas, and assorted other fun.
one complication - the vendor will lease back the building at 4.2% net net (net of property tax and management) yield for the next three dire years, with an additional option for 24 months at no more than 10% annual rent increase.
we have agreed to pay the construction cost less land value - in other words, a darn good deal, especially in view that (i) hk$ interest for deposit is now close to zero due to our peg to the wastrel us$, (ii) hk$ mortgage rate is at 3.75% per annum, adjustable monthly and dropping, and (iii) hk remains the most desired city in the heart of 1.3 billion people.
had the building been an apartment just 10 minutes drive away, it would have sold at 10x what we are paying.
why did the vendor sell?
i guess the credit squeeze is squeezing her business, and she needs the cash for her enterprise.
should her biz go belly up, like the seafood restaurant once did, no worries, because the lease-back rent is about 14% below a rising market bid, and so i am not fussed about a risk that is more an opportunity.
strategically, i have asked, and all club members have agreed, that we will fund up for the acquisition with 100% equity, and save our now not insubstantial borrowing power for a dire shopping day that may be upon us sooner than we expect.
i am expecting at the very extreme least a 2x capital value within 5 years, perhaps a 3-4x, and should the hk$ revalue up against us$, all the better.
now our property club has 100% debt-free claim on a small building within a rejuvenating zone near the gold & silver exchange in CBD, two old but full ocean view apartments in gentrifying fishing village embraced by a gentrified residential neighborhood within 30 minutes bus ride from CBD, and now, an industrial property just so few feet away from all that will be happening.
real estate investment seem easier than same in shares and bonds, more sure, more transparent, and more amenable to application of nutritious leverage.
chugs, tj |
