Gaw Capital turns faded properties into gems for fat returns

Gaw picked up hotels in Thailand, and office buildings in HK and Macau, co-investing with institutions including Morgan Stanley

When InterContinental Hotels Group announced the sale of its Hong Kong flagship for USD938 million to a group led by Gaw Capital Partners on July 10, even insiders were caught off guard.
In a town dominated by a handful of multi-billionaire property developers like Li Ka-shing and Lee Shau-kee, the sale of the coveted harbor-front hotel to a little-known local private equity fund was unexpected.
“They aren’t really a household name in Hong Kong and this is such a high profile deal,” said Antonio Wu, deputy managing director for Asia Capital Markets at Colliers International. “We were really surprised.”
Though Gaw Capital hasn’t attracted much attention at home, the group founded and owned by a Hong Kong family has been busy in the rest of the world for more than two decades, with projects ranging from the venerable colonial hotel, The Strand, in Yangon, to a retail arcade in Berlin’s Alexanderplatz to Seattle’s tallest skyscraper.
As of March this year, Gaw Capital had raised $4.26 billion from private equity partners, including four China-focused funds and two based in the U.S. Gaw Capital’s institutional investors include Korean pension funds, Chinese insurance companies and Middle East sovereign wealth funds.
“They have developed a strong loyalty from their investors by consistently achieving returns in excess of 20 percent,” said Marcus Neill, director of business development for Asia capital markets at CBRE Ltd. in Hong Kong. “They can articulate a proposition to foreign investors, and know how to operate locally, and are exceptionally good at timing the market.”
But what really sets Gaw Capital apart from other funds is its hands-on approach to operations, renovation, design and branding of the properties they choose to overhaul.
Take the Hollywood Roosevelt Hotel in Los Angeles. In 1995, Goodwin Gaw, then 26 and two years out of Stanford graduate school, picked up the derelict building for $10 million with money raised from family and friends. He spent another $20 million restoring the famous landmark to its former glory. Site of the first Academy Awards ceremony in 1929, it’s now one of LA’s trendiest spots for A-listers like Johnny Depp and Leonardo DiCaprio.
Other L.A. heritage gems followed, including the Bradbury Building, whose exquisite ironmongery was featured in the film “Blade Runner.”
Soon Goodwin was expanding beyond California: a ski resort in Colorado, a golf course in Hawaii, warehouses converted to hip condos in Manhattan.
When the Asian financial crisis struck in the late 1990s, Goodwin returned to work in Hong Kong, with his younger brother, Kenneth, at Pioneer Global Group, the listed company founded by their father. They sorted through the detritus for cheap assets around the region, picking up hotels in Thailand, and office buildings in Hong Kong and Macau, co-investing with institutions including Morgan Stanley.
In 2005, the brothers founded Gateway Capital, now known as Gaw Capital Partners. Their sister Christina joined Gaw in 2008 after 16 years at Goldman Sachs and UBS. She now oversees fund raising. Humbert Pang, a fourth partner since 2006, rounds out the team running China operations.
Their first property fund, Gateway China Real Estate Fund I, raised $200 million in 2005, earning investors two and half times their money from projects including the restoration of a 1930s Art Deco department store in Shanghai and a shopping complex developed with Swire Properties in Beijing.
Another project, the Hotel G, is vintage Gaw, transforming what its Taipei-based architect Mark Lintott described by telephone as a “really crappy office block” into an edgy boutique hotel – in less than nine months in time for the Beijing Olympics.
More recent projects include arranging China’s Ping An Insurance company’s 260 million pound ($405 million) purchase of the Lloyd’s of London building in 2013, to partnering with the Korean Teachers’ Credit Union in the 191 million pound purchase of the Exchange Tower in London’s Docklands from BlackRock last year.
Still, the stakes involved in the purchase of the Intercontinental are high. Its new owners include Pioneer Global and a Korean institutional investor.
Though the hotel boasts the Michelin two-starred Yan Toh Heen Cantonese restaurant and a breathtaking view of Hong Kong’s Victoria Harbor, the rooms haven’t been upgraded in decades. What’s more, the New World Group led by billionaire Cheng Yu- tung is erecting a massive new hotel property next door.
The Gaw family acknowledges the challenges. “Hong Kong was and still is rigged in favor of big property developers,” said Kenneth, 44. “If you want to buy land and develop, the check size is too big.” Frederik Balfour, AP