The fund holds the assets for up to five years. It buys a street shop first before introducing the asset to professional investors.
Lee believes small shops in non- core districts will command high prices. He says positive sentiment has returned to the market for street shops since the beginning of the year, partly driven by higher stamp duties for residential property.
"I bought a shop in Cheung Sha Wan at the beginning of the month. In the same month several shops on the same street belonging to the same owner were sold within a few days. They were all bought by residential property investors and people living nearby.
"These veteran home investors usually start with small shops in the neighborhoods as they are new to the street shops market."
The Housing Society has a number of residential projects in the district, says Lee, attracting pedestrians. "If there happened to be redevelopment, then it is a bonus," he says, referring to high prices that could be gained by a possible acquisition by developers.
He expects another 5 to 10 percent increase in the prices for small shops.
Lee plans to buy two more shops in the first quarter and is trying to identify ones for between HK$10 million and HK$20 million in districts with redevelopment potential such as Yuen Long, Tsuen Wan, and Yau Ma Tei. "But first, I think, we are going to get one in the Eastern district. North Point is another location I like." Development activity on Oil Street may encourage private homeowners and hotel room occupants to invest in street shops. This may set the stage for a future rise in valuations.
Lee expects a more heated street shop market after March, once the next Chief Executive takes office. Veteran investors have already moved in, he says referring to Cheung Shun-yi, who bought a restaurant on Queen's Road West for HK$19.8 million. It was then sold at a HK$5 million profit in two weeks.
Lee is eager to explore larger shops in tourist areas, namely those with market value exceeding HK$60 million to HK$70 million in Causeway Bay and Tsim Sha Tsui. "I will start looking later in June or July."
"We always earned most with small shop exits," says Lee based on 50 or so deals. The fund plans to invest in another 20 shops this year, he says, by acquiring at least a shop every month. Average rental return was 3 percent to 4 percent for shops held, or a 6 percent to 10 percent rate of return, taking into account the increase in valuation during the holding period.
Compared with residential sites and private homes, street shops do not attract mainlanders.
"Unlike offices and homes, shops are not valued by the square foot," Lee explains. "Even residential property, mainlanders would buy new homes but not be bothered with negotiations in the second home market."
But Lee has managed to secure capital from executives with a Chinese background. Global Mastermind Capital (0905), chaired by Mung Kin-keung, who is believed to have an affiliation with the HNA Group, has invested HK$300 million in the company.
"We will continue our cooperation," Lee says. He adds that he is more interested in the money itself than where it comes from. He will not rely on Mung as the sole source of funds.
Another major idea Lee is planning this year is the concept of serviced shops. "Just like the idea of serviced apartments, we will provide facilities needed to build a business, including wi-fi access, cleaning, and certain licenses, and so on." In return, he will charge higher rent.
"It is a loss-first, profit-behind model," Lee says, comparing the model to that of mall operators. He believes that it is possible to charge tenants rental based on turnover.
The one-stop service may be able to lure more investors, giving more confidence also to Chinese investors who may be less familiar with the street shop market.
"We want to have a relatively more long-lasting relationships with our tenants," Lee says.
He has hired "industry specialists" to walk him down the streets. "We will pay HK$1,000 to HK$2,000 to these people for an hour or two, who are experienced in retail, food and beverage, or even funeral planning."
These people give him deeper insights. "Like the districts they cluster, their business models, shop features and so on."