KKR & Co. and AEW Capital Management LP face potential losses as they seek to offload commercial real estate holdings in China, the latest global investors to sell assets during the country’s prolonged property downturn.
New York-based KKR plans to dispose of an upmarket multi-family apartment complex in suburban Beijing and a mid-market hotel along Shanghai’s historic Bund waterfront, according to people familiar with the matter.
Boston-based AEW is seeking buyers for the HeXa International Plaza office tower and the mixed-use Jing IN International Center in Beijing, as well as the Shanghai Pudong Development Bank building in the Lujiazui business district, the people said, asking not to be identified discussing private matters.
Discussions are at an early stage but the asset managers expect to recoup more than the loans they took out for the purchases, which make up between 50% and 60% of the original prices paid, according to the people.
KKR remains engaged in private equity business in China, where it has more than a dozen active investments, including TikTok owner ByteDance, mushroom producer Jiangsu Yuguan and private hospital operator Kareway Health, according to its website. Last year, KKR established its first yuan-denominated fund in China, raising capital from onshore investors including Ping An Capital Co.
Foreign buyers invested close to $140 billion in office towers, warehouses, shopping malls and data centers in China over the past 15 years, according to data from MSCI Real Capital Analytics. But they have largely switched to selling mode as the country’s economic slowdown and an unprecedented supply glut cause rents and values to tumble.
The downturn is especially painful for investors who made their bets near the 2019 peak, when the estimated market value of office assets was at an historic high.
In 2020, AEW bought a Grade-A office project in central Beijing with local private equity investor Hony Capital Ltd., and later renamed it HeXa International Plaza after renovations. In late 2021, KKR purchased a 3,000-unit multi-family project in suburban Beijing.
China’s property crisis has also caught many lenders off guard, including HSBC Holdings Plc and Standard Chartered Plc, which have set aside hundreds of millions of dollars for provisions against commercial real estate portfolios.
Last year, lenders led by Standard Chartered took a more than 10% loss when a Shanghai office complex previously owned by a BlackRock Inc. fund was sold at a discount of more than 40%, people familiar with the matter said at the time. The BlackRock fund’s entire equity investment in the real estate was wiped out.
