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How Adrian Cheng Is Rejuvenating A 50-Year-Old Business By Targeting China’s Millennials

When Adrian Cheng looks across Hong Kong’s harbor from Tsim Sha Tsui, he sees his family’s legacy writ large across the city’s skyline. There, from a balcony atop the new luxury apartment building of his Victoria Dockside development, he can view the Hong Kong Convention and Exhibition Centre on the opposite side of the harbor.

With its curved glass and massive sloping roof, the convention center is said to resemble a bird taking flight. His grandfather Cheng Yu-tung, founder of the family’s flagship property firm New World Development, came up with the ambitious plan for the building, which included a manmade island, back in the early 1980s when the market was in a slump and other developers had no interest. Undeterred, Yu-tung turned the convention center into a Hong Kong icon, showcasing New World’s capabilities. Yu-tung reportedly once said the convention center was one of the two projects of which he was most proud.

And the other project? It was the New World Centre, a mixed-use complex that was demolished about a decade ago to allow the development of Victoria Dockside. Cheng has overseen this project from the start, building on the site of his grandfather’s former landmark, as part of a wider strategy to develop his K11 brand.

“I’m not inheriting a 50-year-old family business and trying to preserve it and hold it tight. That’s not me,” Cheng says. “I’m disrupting it and rejuvenating it to create a new business model.” While Cheng’s father, Henry Cheng Kar-shun, continues to serve as New World’s chairman, his eldest son is executive vice-chairman and general manager, a position he has held since 2017.

As with the convention center, the $2.6 billion project was risky. The launching of Victoria Dockside, which has opened in stages from 2018, comes as Hong Kong suffers its worst downturn in a decade. Hit by months of protests and the U.S.-China trade war, Hong Kong’s third quarter GDP contracted 3.2% from the previous quarter, after retreating 0.4% in the second quarter—its first recession since the global financial crisis in 2009.

Victoria Dockside was a gamble in another way. Cheng could have taken the safe route, choosing a conservative design. Instead, Cheng endorsed an innovative design expressing the ideals of his K11 brand, which he created and has refined since 2009. This complex is the biggest and most elaborate expression of the brand. The 65-story office tower is called K11 Atelier, the luxury apartments K11 Artus and the shopping mall with art galleries K11 Musea. The only major non-K11 brand in the complex is Rosewood Hong Kong, part of a luxury hotel chain that the family also owns.

K11 is a novel concept—blending “art, people and nature.” It is meant to fuse together elements of artistic, cultural and environmental design in public and private spaces. “I don’t see [K11 Musea] as a shopping mall, but as a place for millennials to learn, acquire knowledge and be immersed in different cultures.”

To fulfill his vision, he hired 100 designers, architects and artists from around the world, each overseeing a different part of the complex, even utilitarian areas such as the carpark. Coordinating it all was New York’s Kohn Pedersen Fox Associates, one of the world’s leading architectural firms.

One striking example of K11’s brand DNA is the atrium of K11 Musea, which soars eight stories and features twin circular skylights and a geodesic sphere measuring 10.4 meters in diameter suspended over the space whose interior is reserved for performances or exhibitions.

Cheng’s gamble is showing early signs of paying off: even as Hong Kong’s economy contracted, K11 Musea opened last August with 97% occupancy and K11 Atelier has around 80% occupancy at rental rates above HK$100 per square foot ($13)—33% above the average rent for grade-A office space. The complex has won multiple awards—even one for its carpark, which features graffiti by Cara To, a Belgian artist born to Hong Kong parents.

“Our slogan for New World Development is we create, we are artisans,” Cheng says. “I want everyone to believe that they are a creator, that they can innovate and create things.” Victoria Dockside’s tenants include Cartier and Gucci, and several brands new to Hong Kong such as Fortnum & Mason’s first store outside the U.K., a Le Cordon Bleu cooking school and a Van Cleef & Arpels jewelry school (only the second such school in the world).

Cheng, 40 and an avid art collector, first tested K11 in Hong Kong in 2009 with a six-story “art mall” in Kowloon’s Masterpiece building, a joint venture between New World and Hong Kong’s Urban Redevelopment Authority. He then developed K11 projects in mainland China—Guangzhou, Shanghai, Shenyang, Tianjin and Wuhan—all of which combine commerce with art. He plans to keep expanding the K11 brand, with plans for a total 36 projects opened across China by 2024. He also runs the nonprofit K11 art foundation and the for-profit K11 Investment fund.

“The hardest thing I think is the tenacity and the perseverance of testing that product for the first few years, and believing that it would work, not blindly or egotistically, but knowing it would take time,” Cheng says of his vision for K11.

More on Forbes: ‘Shop King’ Tang Shing-bor Became A Billionaire Flipping Hong Kong’s Derelict Properties

To further his interest in art, Cheng has taken high-level roles at some of the world’s leading art institutions, including being a board member of New York’s Museum of Modern Art PS1 and a trustee of London’s Royal Academy of Arts. He likes to pepper his social media with posts about art.

On the business side, Cheng also runs two private investment ventures from Hong Kong. The first is C Ventures, which he runs with Clive Ng, a veteran entrepreneur and investor in media and internet companies in Asia.

C Ventures has investments in about 20 fashion, media and lifestyle startups. Among them is Golong, a Hangzhou-based site selling cosmetics from trendy brands such as British brand Man Cave and Korean brand SNP. The company claims to be valued after its latest financing round at over $300 million. The K11 Investment fund invests in tech firms in areas such as AI, virtual reality and big data.

Beyond making money on the investments, Cheng sees these funds as a way to stay on top of quickly evolving tastes and technology, especially among China’s younger generation. “The paradigm shifts very fast,” says Cheng. “We’re looking at the consumer habits of millennials and Generation Z.”

Looking beyond K11 and Victoria Dockside, Cheng is continuing to expand New World through other real estate projects. Two of New World’s biggest projects under way are the HK$20 billion Skycity and the HK$30 billion Kai Tak Sports Park. The first will cover 25 hectares, and when fully completed in 2027, will be one of the largest mixed-use complexes in Hong Kong. The Kai Tak Sports Park, meanwhile, will be on the site of the former Kai Tak airport. The complex will be home to a 50,000-seat main stadium, a 10,000-seat indoor sports center, a 5,000-seat public sports ground and other facilities, and is slated for completion in 2023.

Over the next five years, New World would like to more than triple its portfolio of investment properties in Hong Kong, from 2.3 million square feet to 9.8 million. In mainland China, the company’s rental portfolio is expected to grow from 0.2 million square meters to 1.3 million. The company, he says, wants to reposition itself to focus on China’s “greater bay area”—an area within about a 100km radius around Hong Kong that China would like to develop into an integrated megalopolis, including Guangzhou, Shenzhen and Zhuhai.

Demonstrating China’s importance to New World, the family privatized its formerly listed New World China Land in 2016 so it could have more direct control over its mainland strategy. More than 50% of its China landbank is now located in Guangzhou and Shenzhen.

All this expansion comes at a cost. Among Hong Kong’s big developers, New World has one of the higher ratios of debt to equity, at 32% in 2019 compared with the previous year’s 29%. Yet Cheng is confident that New World can handle the debt load. For the fiscal year ended in June, the company’s revenues—generated through a mix of property sales and its rental business—rose 26% to HK$77 billion, while underlying profit was up 10% to HK$8.8 billion.

In December 2018, New World diversified its business further when it bought FTLife Insurance for HK$22 billion through its infrastructure subsidiary NWS Holdings. The acquisition was aimed at expanding the firm’s life and medical insurance business after it launched in the same year Humansa, a Hong Kong-based healthcare service for the elderly in the greater bay area.

To help with the need for more affordable housing in Hong Kong, New World announced last September that it would donate around 20% of its agricultural landbank, some 280,000 square meters, to the government, where it will construct over 100 apartments for low-income families by 2022. Explaining this act of generosity, Cheng says: “What I learned from my father and my grandfather is that you need to have a very big heart.”

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I’m a senior editor based in Hong Kong. I’ve been reporting on Asia’s wealthiest people for Forbes and Bloomberg for about a decade. Previously, I worked with British diplomats at the consulate general in Hong Kong. Any tips, please contact me at rolsen@forbesasia.com

Source: How Adrian Cheng Is Rejuvenating A 50-Year-Old Business By Targeting China’s Millennials

May.08 — Adrian Cheng, executive vice chairman at New World Development, discusses how the U.S.-China trade negotiations are impacting investor confidence in real estate, the property market in Hong Kong, his current projects, priorities in China, China’s property market and Chinese consumption trends. He speaks exclusively on “Bloomberg Markets: Asia” from the sidelines of the JPMorgan Global China Summit in Beijing.

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Meet The ‘Shop King’: How Tang Shing-bor Became A Billionaire Flipping Hong Kong’s Derelict Properties

Tins Plaza was an eyesore, a run-down, abandoned plastics factory in the Tuen Mun district when Tang Shing-bor first spotted it. To Tang, though, it was a gem, one of many forgotten industrial buildings sprinkled around Hong Kong, well worth the roughly $36 million he paid for it in 2005. But even he couldn’t have foreseen that just two years later he would triple his money on it.

It was by snapping up derelict industrial properties like Tins Plaza, flipping them or redeveloping them, that Tang went from the verge of insolvency in 2003 to billionaire in 2016, when he first made the list of Hong Kong’s richest. Now at 86 and No. 14 on the list with a net worth of $5.7 billion, Tang is making one of his biggest contrarian bets yet.

Despite months of protests casting a pall over the city’s property market, Tang has embarked on a shopping spree of Hong Kong’s industrial buildings, spending $700 million last year. He ranks as the biggest buyer of Hong Kong industrial properties in 2019, according to data from New York-based research firm, Real Capital Analytics.

This is the best opportunity I’ve ever seen,” says Tang in a rare interview, held at one of his buildings in Hong Kong’s bustling Mong Kok district, just blocks from where some of the most violent scenes of unrest have taken place. During the interview, Tang is multitasking, juggling phone calls from brokers, developers and lawyers. He is negotiating his next purchase, a dilapidated building next to the city’s old Kai Tak airport, which the government is auctioning off for redevelopment. To Tang, Hong Kong’s political turmoil is only creating better bargains. “We will move on from this,” he says.

Property is only the latest of Tang’s several incarnations in a career that traces Hong Kong’s own development.

At his side is the youngest of his five sons from two marriages, Stan Tang Yiu-sing, 34, chairman of the holding company he and his father established in 2013 and named Stan Group. Tang Sr., whose title is honorable chairman, remains very involved, and the two meet twice a day. Stan oversees new businesses and redevelopment of properties. Tang still cuts the property deals. “I make the final decisions,” says Tang in a booming baritone that belies his age.

Known in Hong Kong’s real estate circles as “Uncle Bor,” property is only the latest of Tang’s several incarnations in a career that traces Hong Kong’s own development—from neon bulb maker in the 1950s, to 1970s restaurateur, to earning the moniker “shop king” for his string of retail spaces—a foray that almost broke him.

Today, Tang is renowned for his knack of spotting remnants of Hong Kong’s bygone days as a manufacturing hub, its disused factories and warehouses, in areas poised for gentrification. That expertise is attracting eager partners, including Hong Kong’s Chinese Estates Holdings and Yangzhou-based Jiayuan International, which have both set up joint ventures with Stan Group to redevelop its industrial properties. “He’s very effective and experienced in converting these building sites,” says Joseph Lam, associate director of industrial services at Colliers International.

Tang has never feared failure. His father died when he was 5 and he was raised by his mother, who took a low-paying job in a factory to support them. “I had to come up with creative ways to survive,” he says. Tang recalls loitering outside restaurants when he was hungry, waiting for handouts. Growing up poor gave him grit: well into his 70s, he kept in shape with dawn swims beyond the shark net off Hong Kong’s shore. “There’s always a way,” he says. “There’s never a problem that can’t be solved.”

With only a primary school education, Tang became an apprentice in 1950 to an electrician making neon signs, and in his 20s opened his own store catering to then-booming demand for the bright storefront marquees that remain one of Hong Kong’s hallmarks. Neon success enabled Tang in 1970 to open a dim sum eatery with friends. That led to a string of restaurant investments, including a seafood restaurant in Sydney, that Tang would in 1982 consolidate as the East Ocean Gourmet Group, which is still thriving today. The 1980s saw Tang branch out into a flurry of new businesses, including a used car dealership. But it was buying and selling shops where Tang made his mark. “Looking after the restaurant exposed him to news of nearby shops,” says Stan. One of his most notable investments in the following years would be the purchase in 1990 of an old restaurant building that he would transform into the renowned Mongkok Computer Centre.

“I’m optimistic about Hong Kong’s future,” says Tang. “I’ve seen ups and downs. There are opportunities out of risks. This is my chance—my turn.”

Tang Shing-bor

By 1997, Tang had amassed more than 200 shops worth roughly HK$7.3 billion ($942 million) and began planning an IPO, only to be thwarted by the Asian financial crisis. Hong Kong’s property market fell 70% between 1997 and 2004 as the crisis was followed by the outbreak of SARS in 2003. By 2004, with HK$4 billion in debt, Tang began selling most of his portfolio, including his prized Mongkok Computer Centre.

More from Forbes: Hong Kong’s New No. 1: Lee Shau Kee Edges Out Li Ka-Shing As City’s Richest Person

What he didn’t sell, however, was a smattering of industrial space he began buying in 1996 to hedge against volatile retail rental yields. And Tang knew just where to buy. Hong Kong had decided in 1990 to close Kai Tak and build a new, larger airport on Lantau Island. So Tang focused on Tuen Mun, a neighborhood directly across a bay from the new airport and connected by road to Hong Kong’s nearest neighbor in mainland China, the fast-growing city of Shenzhen.

Tang starts drawing a rough map: “Let me tell you about the factories on San Hop Lane,” he says as he sketches out the streets and buildings around his first purchase, Tuen Mun’s Oi Sun Centre. Tang bought the former factory in foreclosure for HK$42 million in 2004.

Up the street was Tins Plaza, the retired plastics factory named for its former owner, chemical tycoon-turned-philanthropist Tin Ka-ping. Tang picked up the building in early 2005 for HK$280 million, putting HK$28 million in cash down and borrowing the rest from banks using another of his buildings as collateral.

Six months later, Tang says he received a call from an industrial property unit of Australia’s Macquarie Bank, Macquarie Goodman, offering him HK$500 million for the building. By October, he had a second offer, for HK$520 million, from Singapore property investment fund Mapletree. “But that’s not even the best part,” Tang says.

Faced with rival offers, Tang chose neither. Commercial property commands a higher price than industrial property, he reasoned, so he had Tins Plaza rezoned as commercial. Two years later, Tang found himself in an elevator to Macquarie’s offices in Hong Kong’s International Finance Centre to meet an executive who had flown in from Sydney with a new offer. “The gweilo [foreigner] boss was a handsome man,” Tang says. “He was very straightforward and asked me whether I’d be willing to sell for HK$850 million.” Macquarie in 2008 sold its stake in Macquarie Goodman to its joint venture partner, Goodman Group. Both Macquarie and Goodman declined to comment on the deal.

Tang’s prediction had come true: demand for Hong Kong’s old industrial space had indeed rebounded—not, as he foresaw, because of the new airport, but because of surging demand for the data and fulfillment centers needed to provide cloud services and e-commerce. “There are new technologies like data center users going into warehouses,” says Samuel Lai, senior director at property services firm CBRE in Hong Kong. Tang sold Macquarie Tins Plaza, earning HK$570 million on his HK$280 million investment. “Tins Plaza was the most memorable transaction I’ve ever made,” he says.

But Tang wasn’t resting on his laurels. After seeing the offers roll in for Tins Plaza, he set about buying another former factory down the street, the Gold Sun Industrial Building. Unlike his previous two deals, Gold Sun had several owners, each requiring separate negotiations. Tang bought the first of the building’s eight stories in 2006; he wouldn’t manage to clinch the eighth until 2014. “I bought it floor by floor,” says Tang.

Tang’s timing proved impeccable. Eager to boost the supply of property for offices, hotels and shopping, Hong Kong’s government in April 2010 implemented incentives to redevelop disused industrial properties. The so-called revitalization scheme lifted restrictions on how large a building developers could build on land converted from industrial use. The result: Factory prices surged 152% between the policy’s launch and early 2016, when the government ended the incentive. “The best initiative that came out and led to a lot of transactions was the relaxation on the plot ratio,” says CBRE’s Lai.

Tang got another lift in 2013, when the government announced the start of construction on a tunnel linking the new airport and Tuen Mun. Tang combined his Oi Sun Centre and Gold Sun Industrial Building into a single development, One Vista, a two-tower office building and shopping complex. In May 2018, he bundled One Vista with two other Hong Kong properties and sold roughly 70% to Jiayuan International for HK$2.6 billion.

Tang has left Mong Kok to head downtown to his East Ocean Lafayette restaurant overlooking Victoria Harbor. Nibbling on fried turnip cake dipped in spicy Cantonese seafood sauce, he is closely shadowed by two lawyers sipping tea at the next table and waiting their turn to update him on his deal near Kai Tak. Uncle Bor has already managed to buy 73% of the buildings near the old airport, just 7% away from the threshold at which he can legally compel the remaining owners to sell. Redevelopment of Kai Tak stands to boost property values around the area. And a new revitalization scheme, launched last year, has lifted limits yet again on how big developers can build on converted sites. If and when Tang clinches ownership, he and his partner for the property, Chinese Estate Holdings, will be able to knock down the existing building, and build a new one with 14 times as much saleable space.

“I’m optimistic about Hong Kong’s future,” says Tang. “I’ve seen ups and downs. There are opportunities out of risks. This is my chance—my turn.”

After returning to Hong Kong from university in the U.K. 15 years ago, Stan Tang Yiu-sing opened an ad agency with friends. Soon, though, he was working with his father, Tang Shing-bor, learning the real estate business and building property management and leasing firms. In 2013, he and his father set up Stan Group to integrate the family’s real estate investments with his service offerings. Stan now chairs the group and oversees the conversion of the older buildings his father buys into modern retail and commercial properties.

“Pure property investment is no longer our only single investment direction,” says Stan, who has joined the shift among Asian property executives from asset-focused development into service-oriented offerings—hospitality, co-working spaces and incubation hubs. Stan Group now operates six hotel brands with a combined 3,500 rooms. In 2016 it launched an innovation hub for entrepreneurs, called “The Wave.”

Stan has also steered Stan Group into financial services, a private members’ club, and serviced apartments catering to the elderly. “The government has given us policies that present us an opportunity to reposition ourselves,” Stan says, echoing his father’s confidence in Hong Kong’s future as part of the greater bay area comprising Guangzhou, Hong Kong and Shenzhen. The 34-year-old plans to list five of the group’s companies by 2023, though the property representing 90% of Stan Group’s assets will remain private, he says. Stan says his aim is to grow non-property businesses to someday represent at least half of the group’s total assets.

Pamela covers entrepreneurs, wealth, blockchain and the crypto economy as a senior reporter across digital and print platforms. Prior to Forbes, she served as on-air foreign correspondent for Thomson Reuters’ broadcast team, during which she reported on global markets, central bank policies, and breaking business news. Before Asia, she was a journalist at NBC Comcast, and started her career at CNBC and Bloomberg as a financial news producer in New York. She is a graduate of Columbia Journalism School and holds an MBA from Thunderbird School of Global Management. Her work has appeared in The New York Times, Washington Post, Yahoo, USA Today, Huffington Post, and Nasdaq. Pamela’s previous incarnation was on the buy side in M&A research and asset management, inspired by Michael Lewis’ book “Liar’s Poker”. Follow me on Twitter at @pamambler

Source: Meet The ‘Shop King’: How Tang Shing-bor Became A Billionaire Flipping Hong Kong’s Derelict Properties

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