Creditors Struggle To Sell China Evergrande Centre

HONG KONG – Creditors are facing difficulties disposing the China Evergrande Centre, which was renamed as YF Life Centre, nearly a year after they seized the office building, reported Bloomberg last week.

Tiffany Wong, the Managing Director of Alvarez & Marsal’s restructuring practice in Hong Kong, revealed that there have been “quite a few serious inquiries” for distressed commercial properties under receivership in the city, including the said 26-storey office tower in Wan Chai.

However, only a few transactions materialised due to “a wide gap in expectations of the fair value of the property,” she explained.

While marketing agent Savills, the receiver, and creditor China Citic Bank International did not provide any valuations for the office building to Bloomberg, several surveyors who specialize in assets in the area gave estimates ranging from around HK$5.2 billion to HK$7 billion (US$670 million to US$900 million).

That’s a far cry from the US$1.6 Billion price indebted developer Evergrande paid for the office building. It’s also lower than the HK$7.6 billion in loans the asset was used as collateral for.

Worse, Savills Hong Kong’s Deputy Senior Director Godfrey Cheng disclosed that Evergrande’s financial problems have started impacting operations at the property. Three of the lifts at YF Life Centre have stopped functioning after Evergrande failed to pay the contractor in charge of maintaining the elevators there.

“More Mandarin speakers came to the city to check out the building after the border opened, which is a good sign at least. But no agreement was reached,” Cheng added.

Moreover, it’s hard to sell the former China Evergrande Centre as Hong Kong’s commercial real estate sector is at its dismal state in nearly 10 years, with prices of office properties plunging by around 35 percent from peak in 2018 to the lowest level since 2016.

Also, the overall vacancy rate of Grade A office properties in the city rose to almost 15 percent in May, which is more than triple the office vacancy level witnessed in 2019. Amidst rising interest rates and a huge amount of income office stock, investors have little appetite to bet on Hong Kong office buildings.

A recent transaction that gives an idea regarding the possible price that could be fetched by YF Life Centre is the Goldin Financial Global Centre. After two years of being on the market, the latter was divested for HK$5.6 billion, down from its estimated value of up to HK$16.5 billion.