Shanghai Heritage Apartments Go for $72M in Distressed Sale

A building in downtown Shanghai was sold via an online auction of distressed properties for RMB 504 million ($72.3 million) on Thursday, giving its new owner a 27 percent discount on the original valuation of RMB 701 million, as China’s property crisis continues to create opportunities for investors.

Shanghai Urban Architecture Design bought the 15,573 square meter, Delin Building, originally known as Derring Apartments, which is located north of Shanghai’s Suzhou Creek near the Bund, after a Chinese court seized the largely vacant property from local firm Shanghai Moshuo Investment, which had provided the asset as loan collateral.

SUAD said in a filing to the Shenzhen Stock Exchange that it would convert the neoclassical apartment building located at 71 Sichuan North Road in Hongkou district into an office and exhibition space to serve as its new headquarters. The six-storey Delin Building was first put up for sale in November 2019 for RMB 850 million but received no offers.

“The RMB 504 million price is lower than market estimates given that the building is close to public transport and major shopping precincts,” said Lu Wenxi, an analyst with the Shanghai branch of real estate agency Centaline. “It’s uncommon for a building in the heart of the city to be sold for just RMB 32,100 per square metre.”

Vintage Properties, Classic Headaches

Built in the 1930s, the property was declared a third-class protected historic monument by the Shanghai government in 2005, requiring owners and tenants to protect and preserve facades and other key architectural elements.

“What put off buyers in the previous sale could be its historic building status that limits renovation options, and the fact that an old building is more expensive to maintain,” Centaline’s Lu added.

After earlier owners had been fined for conducting illicit renovations of the property which damaged its historical value, Shanghai media in November quoted the Hongkou District Housing Bureau as saying that the bureau would see to it that the new owner of the Delin Building would adhere to all relevant rules and laws when carrying out any modifications.

Shanghai has a comprehensive set of policies governing the use and renovation of historic buildings, which can put a damper on values and limits transaction due to the extra costs imposed on buyers maintaining or upgrading these properties if they do change hands, Lu noted.

Self-Use and More

Shenzhen-based Essence Securities said in a report that SUAD’s purchase would enable the company to move operations and staff into a downtown location. The securities firm added that the purchase price represents good value for money as many firms, particularly those in design and creative industries, are interested in historic or loft properties, rather than new buildings, for use as offices.

Hongkou district, an emerging business hub across the river from the Lujiazui financial district, is home to a number of new commercial developments by overseas investors including Capitaland and AIA.

Shanghai has seen successful revitalization projects, including Capitaland’s restoration of a century-old clock tower and chapel within its Raffles City Changning project in western Shanghai, and Swire Properties’ transformation of a historic mansion into a museum and office complex at its HKRI Taikoo Hui project in Jing’an district.