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Real estate fund helmsman Li Genxing cuts losses and stops losses: Four cruel realities behind the 10.3 million loss
"It is better to cut off one's arm than to be trapped in a dangerous city." This golden saying in business warfare is being played out in real life in Hong Kong's floor shop investment market. Li Genxing, the founder of Shenghui Retail Shop Fund and a prominent figure once known as the "godfather of street shop investment", recently slashed the prices of two ground floor shops in prime locations, resulting in a total book loss of HK$10.3 million. A single stone can cause a thousand ripples. This transaction, which shocked the industry, not only revealed the scars of Hong Kong's retail real estate, but also exposed the subversive changes in investment logic in the post-epidemic era.
[Bloody trading inside story] Two shops have lost 1/3 of their value in four years
The first notable transaction took place on Yin Hing Street in San Po Kong. This 710-square-foot porridge shop was bought by Li Genxing for a high-profile sum of NT$21 million in August 2021, when the epidemic was raging. At that time, he boasted: "Minsheng District is very resistant to price drops. A monthly rent of NT$58,000 and a return of NT$33% are stable enough." However, four years later, this "cash cow" that was highly anticipated was sold for NT$13.4 million, with NT$7.6 million evaporated from the books, a drop of NT$36%. If transaction costs such as stamp duty and commission are taken into account, the actual loss may exceed 8 million.
Another shop transaction, the details of which were not disclosed, brought the total loss to 10.3 million. According to industry sources, the shop is located in the traditional livelihood area and was originally purchased for approximately 15 million yuan. It is now being sold at a price nearly 20% off. The two transactions netted a total of 30.7 million in cash, but Li Genxing had to leave the market with a loss of more than 10 million. This was undoubtedly a rare Waterloo in his career for Li Genxing, who was good at short-term speculation.
[The first knife of dissection] Misjudgment of timing: the cost of passing the torch in 2021
Looking at the transaction timeline, the fatal flaw is clearly visible. In 2021, when the global asset frenzy is in the midst of the year, the Hong Kong shop market presents a strange "ice and fire" situation. At that time, the introduction of vaccines gave rise to expectations of recovery, and the decline in shop rents in core retail areas narrowed. However, the Minsheng District, which Li Genxing chose to bet on, fell into a deeper winter due to the outbreak of the fifth wave of the epidemic.
"He fell into the typical 'reverse investment' trap." Midland Industrial and Commercial Property Analyst Zhang Guoqiang bluntly stated, "Taking over the goods in 2021 seems to be bottom fishing, but in fact it ignores three structural changes: cross-border consumption is irreversible, people's livelihood areas are oversaturated, and online food delivery platforms rise." Facts have proved that within 500 meters around San Po Kong, more than 20 new porridge, noodle shops have been added in the past three years. Homogeneous competition has lowered rents by 15%. The so-called "stable returns" are simply vulnerable.
[The second knife hits the bone] Interest rate hike storm: The death countdown for leveraged players
The deeper crisis lies in the financial statements. According to Shenghui Fund's past operating model, this type of land shop investment often adopts the "high leverage + high-interest financing" strategy. Taking the shop in San Po Kong as an example, if the original mortgage was 70%, calculated based on the current P-rate interest rate of 5.875%, the monthly payment would be as high as HK$69,000, which is HK$11,000 more than the rental income! "This is equivalent to losing money every month to maintain the shop. The longer you hold it, the more you lose." Pan Zhiming, managing director of Centaline Industrial and Commercial Properties, made an accurate calculation.
What's even more cruel is that the U.S. Federal Reserve's "higher for longer" interest rate policy has completely shattered the arbitrage model of real estate funds. The formula of "borrowing low money and charging high rent" that relied on a low interest rate environment in the past has turned into a "death spiral" as financing costs soared. Industry insiders revealed that the interest coverage ratio (ICR) of some fund products has fallen below the 1.5 times warning line, forcing managers to cut positions and stop losses.
[The Third Knife Strikes the Heart] Retail Changes: How Food Delivery Platforms Cultivate the Value of Street Shops
When we walked into Yanqing Street and observed on the spot, the truth was even more bloody. Although there were more than a dozen diners in the porridge shop during lunch time, the frequency of deliverymen coming in and out was as high as 2-3 people per minute. "Over 60% of the business for this restaurant is takeaway, so it doesn't need a prime location at all." Boss Chen, a veteran in the restaurant industry, said, "Nowadays, the most important thing when renting a shop is the kitchen area, and the storefront decoration has become secondary. If the owner clings to the 'location theory', he is doomed to be eliminated by the times."
In 2023, the proportion of takeaway orders in Hong Kong's catering industry reached 47%, a surge of 32 percentage points from before the epidemic. When the "geographical radiation radius" is rewritten by motorcyclists, the "monetization of traffic" logic of traditional street shops has collapsed. The "tenement floor shop exposure rate" that Li Genxing valued back then may not be as important as the star rating on the Foodpanda page in the eyes of Generation Z consumers.
[The final blow] Fund redemption wave: a self-protection escape royale under the prisoner's dilemma
The last straw that broke the camel's back was the collapse of confidence among fund investors. According to information from the China Securities Regulatory Commission, the number of redemption applications for a fund product under Shenghui that focuses on people's livelihood surged two times on a monthly basis in 2023. "Investors are seeing that US REITs are paying annual interest rates of more than 8%, while Hong Kong street shop funds are having difficulty paying dividends, and a wave of redemptions is imminent," revealed a private equity lawyer who wished to remain anonymous.
This "prisoner's dilemma" forces fund managers to sell assets at a low price. However, when the market is flooded with sell-offs, it will trigger a vicious cycle of valuations. Data from DTZ shows that the transaction price of shops in Minsheng District in the first quarter of 2024 fell by 45% from the peak in 2021, while Li Genxing's loss of 36% was actually considered to have "outperformed the market." This kind of black humor is a microcosm of the entire industry's survival crisis.
[Ultimate Question] Is street shop investment dead? Three sets of data reveal the future of life
In the face of the dire market conditions, should street shop investments be sentenced to death? Three sets of key data reveal hope:
- Experience-based consumption grows against the trend：K11 MUSEA's sales last year increased by 38% year-on-year, showing that "scene-creating" stores still have explosive power;
- Micro warehouse demand surges：The rental rate of mini-storage in urban areas remains at a high level of 95%, and the transformation into "last mile" stations has become a new way out;
- Policy relaxation is imminent：The government plans to relax restrictions on ground-floor medical clinics; the professional services industry may become a miracle rescuer.
"Instead of cursing the darkness, it is better to light a candle," Li Genxing wrote in his latest blog. This veteran in the shopping mall industry's desperate attempt to survive may be sounding the clarion call for transformation for the entire industry. As the “rent collector” mentality becomes history, the story of the new generation of real estate funds has just begun...
Further reading:
- Li Genxing lost 8.9 million yuan in the trap of "shop securitization"
- Another silver-listed property, the late "shop king" Tang Shing-po's Prince Properties suffered a loss of HK$61 million.
- The crazy Deng Chengbo, the financially troubled agent, was so eager to set off firecrackers to pay tribute to the gods after receiving the commission!
