BlackRock "cuts off supply" and abandons a "failed investment" in Shanghai | Kejin · Finance
Author | Wang Hanyu
Editor | Zheng Huaizhou
In Shanghai, areas such as Zhabei, Yangpu, and Putuo in the north of the Suzhou River are usually habitually classified as "lower-class areas" by the old Shanghainese. In old Shanghai, the rent in these areas was three to four times or even more than ten times lower than that in the "upper-class areas" such as Jing'an and Luwan.
Nowadays, with commercial development, the boundaries in cultural identity between the two "areas" are gradually blurring, but the real estate prices in the regions are still fluctuating and differentiating. This fluctuation is so strong that sometimes even trillion-dollar asset management companies "make mistakes".
Recently, it is rumored that a fund of the US asset management company BlackRock has decided not to repay the syndicated loan of an office building project in Shanghai, and the assets have been taken back by the leading Standard Chartered Bank.
On the surface, this is a decisive "discarding" after the investor's value assessment. However, from a broader perspective, this may be another manifestation of BlackRock's poor investment performance in various asset classes after several years of operating in China.
Trillion-dollar BlackRock "Defaults" on Shanghai Office Building
According to the news quoted by the media from informed sources, the assets taken back by Standard Chartered Bank from BlackRock are located in Putuo District, Shanghai, which are Building E and Building G of the North Shore Changfeng project, with a total floor area of approximately 27,800 square meters.
Previously, BlackRock purchased the above assets from Prudential Financial for 1.2 billion yuan through Jones Lang LaSalle in 2018, of which 780 million yuan came from the syndicated loan led by Standard Chartered Bank.
By 2023, when the repayment period expired, BlackRock negotiated with the bank for a one-year extension, and at the same time put the two office buildings of North Shore Changfeng on the market, with a total selling price of approximately 840 million yuan.
Compared with the acquisition price of 1.2 billion yuan, BlackRock's sale this time is equivalent to a 30% discount. After the news came out at that time, BlackRock's spokesperson also specifically responded to the sale, stating, "We do not comment on individual investment projects. The matters reported by the media recently have nothing to do with BlackRock funds and BlackRock CCB Wealth Management, and have no impact on their operations. We will continue to be committed to our long-term development strategy in China to meet the investment needs of domestic investors and help them achieve their financial goals."
However, the discounted assets were ultimately not sold. The two office buildings of North Shore Changfeng failed to find a buyer within the one-year time limit. Now, when the one-year loan extension has expired, BlackRock refuses to extend it again, and the two office buildings have been taken over by Standard Chartered Bank.
As of the time of publication, BlackRock has not responded to 36Kr's request for comment on the reason for not repaying the relevant loans. However, when investors make such a decision, it is usually because the rental return from continuing to hold the office building cannot cover the interest cost of repaying the loan.
The performance of the office building market in Shanghai and Putuo District in recent years confirms this point.
According to the data provided to 36Kr by Song Hongwei, co-chairman of Tongce Research Institute, on a quarterly basis, the rent of Grade A office buildings in Shanghai has dropped from 10.57 yuan/square meter/day at the end of March 2018 to 7.69 yuan/square meter/day at the end of June 2024, and the vacancy rate has climbed from 10.00% to 21.70%.
Data source: Tongce Research Institute, Charting: 36Kr
Data source: Tongce Research Institute, Charting: 36Kr
According to the report of GuanDian Real Estate Network, the rent of the two office buildings of North Shore Changfeng in 2024 has dropped to 3.2 to 5.8 yuan/square meter/day, and the property management fee is 11 yuan/square meter/month, which is already at a relatively low level in the industry.
Zhang Hongwei, the founder of Jingjian Consulting, also told 36Kr that the supply of office buildings in the Changfeng Business District where the North Shore Changfeng project is located is large, and a large number of new projects are under construction, and the overall supply is in excess. At the same time, this area is a region where real estate developers are concentrated, and the rent decline is inevitable.
"The rental level of office buildings is closely related to the industrial structure of the enterprises settled in the region. Combined with the situation of the real estate industry in recent years, the selling price and rental price of it (North Shore Changfeng and surrounding office buildings) will naturally be discounted. BlackRock failed to sell it, indicating that the market does not accept the 30% discount price, and it may need a 40% or even lower discount." Zhang Hongwei said.
Looking out from the North Shore Changfeng project, the headquarters or East China headquarters office buildings of real estate companies such as Seazen Holdings, Zhongliang Real Estate, and Greentown Group are stationed around. In recent years, real estate developers have undergone a cyclical adjustment, shrinking their scale one after another, and with the continuous entry of new supplies in the region, the surrounding office building market is likely to continue to decline in the future.
Many Funds Are Still in Loss
BlackRock "abandons the pawn to save the chariot" in this commercial real estate investment in North Shore Changfeng. Looking at a longer time line, the former owner of the two office buildings, Prudential Financial, made a big profit from this.
In 2016, PGIM Real Estate, a wholly-owned subsidiary of Prudential Financial, bought the two office buildings from ARA Asset Management for 830 million yuan. After holding them for two years, it sold them for 1.2 billion yuan, with a return rate of 44.6%.
At that time, Benett Theseira, the head of PGIM Real Estate Asia-Pacific, once told the media: "This is mainly due to our entry time and entry price. Looking back now, 2015 and 2016 happened to be the time when the mainland commercial real estate market began to rise."
In contrast, BlackRock's entry timing was not so coincidental. Building E and Building G of North Shore Changfeng have been held for seven years, and the rent of Grade A office buildings in Shanghai has been continuously dropping.
Similarly, the performance of BlackRock's publicly offered products is also not satisfactory.
In 2021, BlackRock officially became the first foreign asset management company approved to independently carry out the public fund business in China. But up to now, many of its active equity products are still in loss.
According to BlackRock's official website, BlackRock Fund currently manages 14 public funds, including 2 equity funds, 6 hybrid funds, and 6 bond funds.
In terms of performance, Wind data shows that the earliest established BlackRock China New Horizon A has a return rate of -36.72% since its establishment, and another BlackRock Hong Kong Stock Connect Vision A has a loss of 20.35% since its establishment. In addition, active equity products such as BlackRock Industry Optimization and BlackRock Advanced Manufacturing with a one-year holding period are still in loss since their establishment.
Data source: Wind, Data as of February 24, 2025
At the same time, BlackRock's index funds and bond funds perform relatively well. For example, the return rate of BlackRock CSI A500 Index Enhanced A since its establishment is 6.26%, and the return rate of BlackRock CSI 300 Index Enhanced A since its establishment is 7.19%.
Looking at BlackRock's 2024 performance, the latest published financial report shows that its total revenue in the fourth quarter was 5.677 billion US dollars, compared with 4.631 billion US dollars in the same period of the previous year, an increase of 22.59%. The quarterly net profit attributable to the company was 1.67 billion US dollars, compared with 1.375 billion US dollars in the same period of the previous year, an increase of 21.45%.
In 2024, BlackRock achieved a total revenue of 20.407 billion US dollars, an increase of 14.27% year-on-year, and a net profit attributable to the company of 6.369 billion US dollars, an increase of 15.76% year-on-year.
As of December 31, 2024, BlackRock's total assets are approximately 11.6 trillion US dollars, an increase of 15% compared to the previous year - based on this, BlackRock is still known as the world's largest asset management company. The deviation between its overall stable performance growth and the poor investment performance in China shows that although BlackRock seems to understand Chinese assets, it still needs to make further efforts.
Previously in January this year, Shen Yufei, the Chief Equity Investment Officer of BlackRock Fund, mentioned in the 2025 China Stock Market Outlook, "We are convinced that 2025 will be a new start in the new macro capital market environment. The investment framework of active equity funds urgently needs to consider the way to break through in the capital market environment dominated by quantitative and active funds, and also faces a new start."
"Start again, do what should be done and not do what should not be done", Shen Yufei said that in terms of fund operation, it should be done in line with the zhuxuanlü of the times, through in-depth research, and forward-looking research.
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