南華早報   South China Morning Post:  PPT3  |   PPT  |   Investment  |  By Jessie Lau  |   2015-12-09

Bridgeway sees diversity in street shops
As Hong Kong property prices continue to fall, one new player in the market is exploring a way to cash in by creating a collective investment scheme for street shops – a venture that a veteran property expert says requires skill to succeed in a traditionally high-risk sector.

Bridgeway Group is a licensed asset management firm that specialises in collective investment schemes for street shop properties. The company raises money to buy properties before establishing schemes that pay investors quarterly rent, as well as returns when the space is resold.

Founder Edwin Lee said the concept behind the scheme is to allow investors to diversify their portfolio without buying entire shops, within a time frame of their choice. Offering a range of contracts from two to 10 years, the firm targets clients with HK$8 million of current assets – who invest a minimum of HK$1 million per share in one scheme. It charges a management fee in addition to a performance fee if the fund makes money.

“In Hong Kong, the difficulty in buying a shop is the investment because it’s tens of millions of dollars,” said Lee, who is also a director of Cyberport Management. “[With Bridgeway] people can invest as little as HK$1 million, and if they have more they can diversify in different funds. We want to securitise the property shop market.”

Having fallen up to about 30 per cent this year, rents and prices of prime street shops are forecast by analysts to decline a further 15 and 20 per cent respectively next year, as tourism from the mainland continues to drop amid Beijing’s anti-corruption campaign.

The rental downturn is also expected to span two years, hitting street shops the most, according to a report by US commercial real estate company CBRE. Landlords may divide some shops to enable lower rents and smaller requirements for retailers, the report added.

According to Lee, this is a good time to buy properties that will inevitably rise in value as a result of Hong Kong’s limited street shop supply. The venture will focus on acquiring properties in districts with new developments like Kowloon city, where a high-speed railway connecting Hong Kong to Guangzhou is expected to launch in 2018.
“Many landlords are willing to reduce prices. Now is a good time to buy bargain deals,” Lee said.

The firm is planning to launch four schemes – three in Hong Kong and one in London – and buy 20 properties with cash, borrowing from the bank at a maximum rate of 40 per cent with leverage depending on the value of each shop. Its goal is to close the first funds within the first quarter of 2016, and raise HK$1 billion by the end of next year.

Veteran property analyst Peter Churchouse said the retail sector is also the riskiest in the market, and to succeed on a large scale requires a very specialised skill set, he added.
“There are lots of people who get a few friends and acquaintances together, inject some capital, set up a company and invest in real estate. That is quite common. But such companies typically have a small number of shareholders,” Churchouse said.

“The mechanics of … running larger collective schemes like this in real estate are difficult. How do you give investors liquidity? Is it an open ended vehicle, or closed end? What is the hold period for the assets?”
Most analysts predict the retail market will be soft, particularly for street shops in districts that cater to China tourism. Yet big price declines do present medium to long-term opportunities for investors, he added.