Urban revitalization projects gaining momentum in China
Retail property funds and mall operators are now allowed to issue financial tools to recover their investments more quickly
Major cities in China, the world’s second-largest economy, are set to launch more and more urban revitalization projects with local governments tending to preserve old buildings amid the country’s conservation and “de-stocking” policies.
As a “de-stocking” economic policy has been implemented in China after the 18th Communist Party Congress in November 2012, many state-owned enterprises (SOEs) started thinking of ways to better utilize their properties, Dickson Sezto Man-chung, the chairman and chief executive of Urban Revitalization Force, told Asia Times.
For decades, SOEs had been lacking incentives to improve the management of retail properties that failed to attract consumers and optimize rental income, Sezto said. Until recently, many SOEs started outsourcing their property management work to utilize their retail spaces to echo the central government’s policy of stimulating domestic consumption, he said.
Since mid-2017, retail property funds and mall operators, including Sezto’s company, have been allowed to issue asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS) for the properties they manage, he said. Under the new policy, they can securitize the rental income of their retail property projects for the coming few years and recover their funds more quickly, he added.
Changes of policy trend
Sezto has been witnessing the changes to China’s urban renewal policies over the past few decades since he took part in Kerry Properties’ Kerry Centre and China World Trade Center projects in Chaoyang district in Beijing between 1995 and 1999. At that time, the Beijing municipal government ordered all the old buildings in the redevelopment site to be torn down, making way for the establishment of the country’s first central business district as early as possible.
In the early 2000s, Sezto joined Shui On Group to take care of its Xintiandi project, a business and cultural complex, in Shanghai. On Shui On chairman Vincent Lo Hong-shui‘s suggestion, the Shanghai government retained some of the old buildings in the project, which eventually helped attract visitors.
Such redevelopment models have since become a new trend in many other Chinese cities as local government realized that preserving heritage buildings can help boost a local economy.
In 2005, he joined Chia Tai Group to help manage its Super Brand Mall in Shanghai. In 2008, he started working as chairman and chief executive officer in Insite (China), a retail property fund backed by US private equity fund Blackstone, until he started chairing the Urban Revitalization Force in 2015.
Since the late 2000s, many Chinese cities launched detailed rules to preserve historical buildings, allowing only a certain proportion of a redevelopment site to be cleared, Sezto said. From 2013, China further tightened its city redevelopment policy by forbidding the tearing down of old buildings.
Different cultures in different cities
At present, the Urban Revitalization Force is part of four city retail property projects in Shanghai and another in Wuhan.
Sezto said his company mainly do retail property projects in prime sites in key Chinese cities as these projects are usually owned by SOEs, which are not allowed to sell their assets under the country’s rules.
The Urban Revitalization Force has contributed to revitalizing a retail property project on Tongren Road in Shanghai and successfully recovered a total of 110 million yuan (US$17.2 million) of funds within 18 months by securitizing the project’s rental income for the following five to six years. Without financial tools such as ABS and CMBS, it may take five to eight years for a retail property fund to recover its investment, he said.
Two years ago, the company had transformed an old warehouse and a car garage into a modern shopping street on Huayuan Road in Wuhan.
He said there are different cultures in different Chinese cities, so retail property funds should not expect to win with a single formula. For example, Beijing focuses more on attracting businessmen and tourists with intangible cultural heritages, while Shanghai wants to become a hub for international events, he said.