Dalian Wanda buys Blackstone's Sydney office block

The Chinese property group plans to invest $1b in a new luxury development, just as analysts fret about its aggressive overseas expansion.

China's Dalian Wanda has agreed to buy offices from Blackstone overlooking Sydney Harbour Bridge and Opera House for about A$415 million ($327.5 million), the latest step in its rapid diversification away from its weakening domestic market.

China's biggest commercial developer, backed by Chinese billionaire Wan Jianlin, said it would invest about $1 billion to create a mixed-use development with a five-star hotel, luxury residential and retail properties. 

“We look forward to creating a new Sydney landmark.” Wanda Group said.

This is Wanda’s second investment in Australia following news in August it will invest $900 million in a joint venture to build a luxury five-star hotel and serviced apartments on Australia's Gold Coast with a planned gross floor area of 146,000 square meters.

In the last two years Dalian Wanda has accelerated its overseas expansion by announcing Wanda Vista hotel projects in cities such as London, Madrid, Chicago, Los Angeles, Gold Coast and Sydney. It aims to build at least 15 luxury five-star Wanda Vista hotels in 15 international cities by 2020. Earlier this month it bought 20% of Spanish soccer team Atletico Madrid for $52 million.

"Considering management are inexperienced in overseas property markets, any aggressive expansion may post financial and cashflow risks on its operations," said Nomura in an analyst note initiating coverage of Dalian Wanda Commercial Properties, the group's recently IPOed company in Hong Kong.

The Sydney harbour project has a gross floor area of 85,000 square meters, which will include a luxury five-star Wanda Vista hotel as well as residential and commercial functions. The hotel will have a gross floor area of 20,000 square meters and feature 160 guest rooms. The development will have a main tower block 185 square meters high.

The drive overseas comes as China's property market falters with many Chinese cities exhibiting signs of over-supply of retail space. Dalian Wanda is China's third-biggest developer in terms of property sales at Rmb160.2 billion ($25.6 billion) in 2014 and number one in terms of investment property area at 14.73 million square meters.

To be sure, Dalian Wanda is also diversifying financing channels from just domestic borrowing to overseas bonds and equity financing, potentially reducing Wanda’s borrowing costs to about 5% to 5.5% in five years from about 8% to 8.5% currently according to analysts. 

Blackstone sells

Blackstone Real Estate Partners VI acquired Gold Fields House, located at Circular through its portfolio company Valad. Valad was acquired by Blackstone in a public to private transaction in 2011 and was Blackstone's first, major real estate investment in Australia.

Blackstone had obtained planning approvals to redevelop the 1960s office building into a residential development taking advantage of the property's prime location.

“Gold Fields House is one of the most significant investments acquired in the Valad portfolio,” said Chris Heady, Blackstone's head of real estate Asia.

Blackstone has built a diverse real estate portfolio in Australia of over A$3.5 billion of assets. It expects the transaction to close in March.

Jones Lang LaSalle and CBRE acted as advisors on the sale.

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