(Bloomberg) -- Hong Kong-based private equity firm Gaw Capital Partners is seeking to take full ownership of two Hong Kong office buildings from partner Hengli Investments Holding (Group) Ltd., according to people familiar with the matter.

The Hong Kong-based fund manager with a special focus on real estate plans to acquire the entire stake in Cityplaza Three and Cityplaza Four via public tender, said the people, asking not to be identified discussing private matters. 

Gaw Capital currently owns an around 65% stake in the properties, both located in Hong Kong’s eastern Tai Koo area, while Hengli controls the remaining 35%. A public tender process hasn’t started and there is no guarantee of the outcome if it does.

Hong Kong’s commercial property slump is causing unprecedented credit stress in a market with around $14 billion of real estate loans coming due for the remainder of 2024, Bloomberg-compiled data show. Funds are increasingly trying to sell once-prized office towers at significant discounts to avoid mounting interest payments on debt, but such sales have been no easy feat. 

A HK$10.3 billion ($1.3 billion) loan backing the properties in question for Gaw Capital and Hengli was structured in a way that rental income generated from the two office towers was supposed to be used to service the bi-annual interest, one of the people said.

But the income wound up being insufficient to meet the full interest payments, according to the person, as high vacancy levels and elevated rates continue to plague the city’s real estate sector.

In cases of a shortfall like the one that came to exist, Hengli was supposed to pay 35% of the gap with Gaw Capital paying 65% — proportional with their stakes in the properties. But since September 2023, Hengli hasn’t paid any of its share, prompting Gaw Capital to cover the full gap with its own funds, the person said.

A spokesperson for Gaw Capital declined to comment. Someone who answered the phone for Hengli in Hong Kong didn’t immediately offer a comment, and said she’d pass questions to the person responsible. There has been no reply to those questions. Messages sent via LinkedIn to the company’s chief investment officer went unanswered.

The duo acquired the two buildings from Swire Properties in 2019 for HK$15 billion. BNP Paribas, Hang Seng Bank, Standard Chartered and United Overseas Bank were among the largest lenders of the HK$10.3 billion syndicated loan used to finance the acquisition, according to the people familiar with the matter.

LPC previously reported on plans by the consortium comprising Gaw Capital and Hengli to sell the office towers. 

Hong Kong-based real estate investment firm Hengli Investments owned by Chen Chang Wei, a Chinese property tycoon and once a non-executive director of Wanda Commercial Properties Co., public information show. 

No contact details of Chen were available in company registry records or on other public databases, and a website for Hengli Investments couldn’t be found.

--With assistance from Shawna Kwan and Venus Feng.

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