A Chinese billionaire has emerged as the buyer for Hudson’s Bay Co.’s key retail property in downtown Vancouver, a sign that some Chinese investors are able to make big foreign real estate purchases.
Zheng Jianjiang, the chairman of Chinese manufacturing firm Ningbo Sanxing Electric, is currently conducting due diligence to buy the six-storey HBC building, according to people familiar with the matter. Sources cautioned, however, that the acquisition is not a done deal.
The cream terracotta standalone building is considered prime real estate in Vancouver, where the economy is booming and demand for commercial property is strong. The department-store property is majority-owned by HBC through its real estate partnership with RioCan Real Estate Investment Trust.
An HBC spokesperson said it does not comment on rumour or speculation, and RioCan’s senior vice-president of investments and residential, Jonathan Gitlin, declined to comment. Ningbo Sanxing did not respond to a request for comment.
Mr. Zheng is listed as No. 1,756 on the Forbes billionaire list, with a net worth of US$1.28-billion. His company, which is not known for real estate, bought one of RioCan’s smaller retail stores in Vancouver early last year for $94-million.
But that was before China unveiled new rules last August to keep capital in the country that included restrictions on foreign real estate acquisitions.
The capital constraints, along with the Chinese government’s seizure of real estate buyer Anbang Insurance earlier this year, raised questions over whether Chinese investors would continue to buy Canadian commercial real estate.
It is not clear whether Mr. Zheng is purchasing the HBC Vancouver property as a private investment or whether it will be part of his company’s portfolio.
The property is under a so-called conditional contract, sources said, which means that the deal can still fall apart.
Sources said Mr. Zheng has offered to pay about $600-million. The expected rate of return or capitalization rate on the property is about 3 per cent, which is considered low for Vancouver.
“It is a great location. The issue is: How do you raise rents for a department store when we all know department stores are challenged?” said Ross Moore, adviser with Cresa commercial realty, who is not involved with the transaction. “I can’t see how the Bay agrees to a 10-per-cent increase in rent every year. Historically, department stores pay low rent.”
If the deal closes, it will be the first major Chinese real estate acquisition in Canada since Anbang’s $1-billion-plus acquisition of a British Columbia-based retirement home in early 2017.
When HBC announced last year that it was considering the sale of the Vancouver property, sources had suggested the department-store chain was seeking up to $900-million.
A price that high would have entailed redevelopment of the retail store, such as adding an office tower or apartment building to the site.
But there are a number of hurdles, including that the property is deemed a protected heritage site and the fact that HBC has stipulated that any sale will include the continued operation of the department store. Any development would have to keep the façade and build on top of the property, which would be impossible to do without disrupting the department store’s operations.
HBC plans to lease back the property, using the bottom four floors for retail and subleasing the top two floors to U.S.-based office-sharing firm WeWork.
Mr. Zheng is said to be taking the long view on the property.
The retailer – which runs Saks Fifth Avenue and its own eponymous department store chain, among others – has been under pressure to redevelop or sell some of its properties to bring in more revenue from its real estate.