Eton Properties Group was established in Hong Kong in the 1980s, and become one of the two super-brand real estate and building construction agencies in Hong Kong. Over the past decade, Eton has developed, and is developing top-end business properties in Hong Kong, Beijing, Shanghai, Dalian, Shenzhen, Xiamen, and Shenyang, and is creating a good reputation for itself. In this interview, Mr. Patrick Wong, Executive Vice President, Eton Properties Group talks about some of Eton Properties’methods, major projects, and plans. 


Mr. John Harrison: what is the background of ETON Properties?


Mr. Patrick Wong: Eton properties belongs to the Liu Lucio Tan Group of Companies which is very well known in the Philippines. The group owns the Philippine airlines and the Philippines National Bank, as well as other major businesses there. In 1980, the Lucio Tan Group started to invest in HK, and we very quickly started to develop about 15 properties in Hong Kong, the most well know of which is Queen’s Gardens service apartments in Hong Kong. In West Kowloon we have the Dragon Centre, which is a 840,000 sq foot shopping centre. 10 years ago, this was the biggest mall in Kowloon. We are one of the top there private property developers in Hong Kong. We are not listed, so funding in Hong Kong is mostly private, without much gearing. Our portfolio in Hong Kong is about HK＄20 billion, and with the exception of one property, we are holding all the properties for the long-term.


In the early 1900s we set up in China and developed a land bank. We are now working on 12 projects in six different cities. We don’t hold that much land, about three million square meters, but all of our projects are in city centers. The projects are in various stages of development. In Beijing we have the well known Chao Yang Garden complex including residential, commercial and office with a total floor area of 280,000 sq meters. We have one hotel project with office and shopping arcade completed in Lujiazui; the Shanghai Eton Hotel and Eton place, Shanghai. In Xiamen we have two completed projects, the Bank Center, a Grade A office building with 56,000 sq meters, and the International Club, a high-status social club which remains the largest private club in the city. We have a mixed-use project in Dalian named Eton Place, Dalian with a total GFA of 800,000 sq meters, with office, residential, service apartments, and hotel. This is the largest and highest such complex in Dalian.


Mr. John Harrison: What is your leasing strategy in China?


Mr. Patrick Wong: Our China strategy is different from our Hong Kong strategy. In China we are still doing some strata title sales. The market in China is huge, we cannot develop and hold everything. We plan to hold about 50% of the properties. Our larger projects are in the 2nd and 3rd tier cities, in Xiamen, Dalian, and Shenyang, for example, where we have a mixed-use project of 1,200,000 sq meters being constructed.


Mr. John Harrison: Do you do the marketing yourselves?


Mr. Patrick Wong: We have our own local teams in the cities we are operating in. We have an international team with people from Hong Kong, Taiwan, England, and France, as well as local Chinese.


Mr. John Harrison: What is your overall vision for the future?


Mr. Patrick Wong: Of course we want to continue to develop mixed-use properties in the center of Chinese cities, because this is a very successful formula. We are very good at combining all the best consultants together, as well as world-class architects such as NBBJ and structural consultants such as ARUP. We strive to work with professionals.


Mr. John Harrison: Surely you have to stop at some point and wait for the money to come in?


Mr. Patrick Wong: I think you have to ask Mr. Tan that question, but I know his long-term is to continue to develop.


Mr. John Harrison: What sort of yield are you looking for?


Mr. Patrick Wong: In the commercial centers we are taking a long-term perspective. The first few years in operation are always the most difficult. The it becomes easier, but on the whole we are looking at a yield [on investment] of 15% including capital appreciation. In the first year that might come down to 3% or 5%. This is a very usual situation in China; you have to include asset appreciation which is very substantial once you have successfully operated the commercial properties.


Mr. John Harrison: What IRR are you looking for?


Mr. Patrick Wong: We are not so concerned with this area, we are more focused on developing a good product, that is our major concern. If you have a good product, you have your foot in the door.


Mr. John Harrison: Are you affected by the international global financial turmoil?


Mr. Patrick Wong: We see that China is actually not that much affected by the international market. There is a higher GDP growth in China. Urbanization is still carrying on and we see at least a decade or two of growth.


Mr. John Harrison: What project are you most proud of in mainland China?


Mr. Patrick Wong: We have been very successful with the Shanghai hotel projects. Also, the Xiamen office center has been highly praised by the market as the best grade A office project in that city, but the biggest challenge is the project in Dalian.


Mr. John Harrison: Tell me about the project in Dalian.


Mr. Patrick Wong: This is in one of the best locations in Dalian, next to the Xiwang building. It is very difficult to get such a large 62,000 sq meter plot of land in the center of Dalian now. It used to be the city zoo built by Japanese, we paid a lot of money to get the animals relocated. This will be a very prominent project in North East China, with a developed area of GFA 800,000 sq meters. There is also an underground tunnel. We started construction in April 2007 and it will take five years to complete. The budget is over RMB6 billion, and will encompass a 5-star hotel, grade A office building, luxury housing, service apartments and a large retail podium. The highest part of the complex will be the tallest building in Dalian and currently in North China. The Shenyang project is also a big challenge, but that only starts later this year.


Mr. John Harrison: Do you think that there is enough demand for this kind of project in Dalian?


Mr. Patrick Wong: The city seems to be developing very quickly. There is a demand for more high end hotels, I am not worried about that. I am concerned with the office section, that is the most difficult, consequently we have reduced the amount of office space to a minimum. We have no doubts regarding the number of service apartments and their sizes. On the retail side, we are not developing a Superbrand Mall. We are emphasizing culture in our mall, with a concert hall. There will be a conference hall in the hotel, which will be the biggest in Dalian. Dalian is a developing city. Tourism is high on the agenda. It’s a beautiful and romantic place. Also, Dalian has a strong industrial base, which provides jobs and rising salaries. The whole project is costing over RMB6 billion.


Mr. John Harrison: So you are mainly working in 2nd tier cities, apart from your Beijing and Shanghai projects. Will you move on out to 3rd tier cities?  


Mr. Patrick Wong: Not yet, but we will when the market in those cities is more mature.


Mr. John Harrison: When do you think that will be?


Mr. Patrick Wong: I think in there or four more years.


Mr. John Harrison: What have been your major problems developing in China?


Mr. Patrick Wong: When we started we had problems, it was really difficult for a foreign developer to develop something in Beijing. But now it is more transparent. We are now pretty skilful, because we have been here for 10 years. We have the connections. We work with people who represent the best in international practice.


Mr. John Harrison: What about the new laws and regulations?


Mr. Patrick Wong: We are able to adapt very quickly, the regulations are not that substantial yet.


Mr. John Harrison: Are you immune from the new regulations because you are mostly self financing? 


Mr. Patrick Wong: Our Hong Kong and China markets are very different. In Hong Kong we have little leverage. But in China, because of the size of the projects; the China land bank itself is maybe 10 or 20 times the size of our Hong Kong plots, and we have more leverage. We fund both in China and abroad, such as Hong Kong. We have good relationships with the banks here [in China], but for commercial properties they take a very cautious look, so we are more dependant on foreign funding sources.


Mr. John Harrison: What percentage of the cost of a project would you decide to borrow for a project in China?


Mr. Patrick Wong: If we take the Dalian project as an example, we have a very good mix; the residential will supply an income stream. Out of the RMB6 billion, the borrowing is about 30%-40%.


Mr. John Harrison: So do you think that the new regulations are going to affect the developers who can’t put in as much capital as you can?


Mr. Patrick Wong: Of course, because they have foreign debt, and that is now been cut down on.


Mr. John Harrison: So if you’re a foreign developer, the best thing to do is to come in with more capital?


Mr. Patrick Wong: Yes, local banks are very happy. But they have difficulties due to the central government having lots of restrictions. But many of the good developers are still confident. Another way is to seek for local funding sources other than banks. Recently, we have strategic cooperation with Union Trust in China to explore the opportunities in local RMB REIT.


We have also participated in the first local private equity trust fund raised by The China Real Estate Association and Union Trust. This is the first publicly raised Properties Fund in China.