HNA Group, the Chinese conglomerate that has been on a spending spree over the last few years, seems to have hit a wall. Numerous reports cite an estimated $90 billion debt that is choking the company as it looks for ways to offload its assets. One of it latest moves is the property HNA owns in San Francisco, which according to Bloomberg, it is shopping around, and Gaw Capital is evaluating if it should acquire it. According to two sources with some knowledge of the discussions, the pricing that is discussed is in the range of $800 to $850 per square foot. That would put the pricing for the building between $275 million and $300 million.
The report stated that the discussion are in early stages, and the outcome may or may not result in Gaw acquiring the asset, but companies are exploring ways to make a deal.
HNA purchased the 28-story building at 123 Mission Street, a 346,000 square foot property, in August of 2016 for $255 million, or nearly $737 per square foot. At the time, it was sold by an investment holding company and a wholly-owned subsidiary of Pacific Eagle Real Estate Fund, L.P., which paid $180MM, or nearly $521 per square foot, at the end of June of 2015, just about a year earlier.
In an official announcement issued on June 22nd to the Hong Kong Stock Exchange, Pacific Eagle stated that the reason for the sale was primarily due to the prices of office buildings in San Francisco, which have appreciated rapidly over the past year, and the General Partner and Asset Manager believed that it was appropriate to dispose of the property, which allows the U.S. Real Estate Fund to take advantage of the favorable market conditions.
HNA acquired building with the audited total rental income of just over $14 million, in a building that is approximately 95 percent occupied by a total of 14 tenants, including McKesson and Salesforce.
According to its web site, Gaw Capital USA, the U.S, affiliate of Gaw Capital Partners, was formed in 2013 to provide services for private equity real estate fund management and separate account direct investment in the United States. But the company has been active in the US since 1995, when Gaw and its associate company, Downtown Properties, started investing in U.S. real estate that today encompasses over $2.7 billion in investments.
Gaw pursues a value-driven investment strategy with a strategic focus on repositioning projects located in major knowledge and innovation markets marked by a young, well educated population and strong employment growth prospects, according to the company’s statement.
In January of 2018, The Registry reported that Gaw U.S. Fund III was in the process of raising $400 million that would be focused real estate investments in the Western United States, including markets like San Francisco and Seattle.