Ivanhoe Cambridge’s recent announcement of the grand reopening of its 60%-owned La Nova shopping center in China’s Hunan province is likely the first inkling many Canadian real estate observers had that the company was active in the world’s most populous country.
“It takes a few years to get going but once you get going, and you do it right, you can enjoy successes like we have had with La Nova,” said Richard Vogel, senior vice-president of Ivanhoe Cambridge China.
The developer’s top executive in the country responsible for the overall investment strategy and operations, Vogel has been living and working in China for more than seven years. He joined Ivanhoe Cambridge from an affiliated company about a year ago.
Vogel said that it takes years for Western developers to lay the necessary groundwork to be successful in China. “It is not an easy place to do business, it takes a lot of time and investment to learn the culture and the markets and companies like [parent company Caisse de depot] and Ivanhoe Cambridge who have long term commitments tend to do the best.”
The La Nova shopping center is a good example of what it takes for a foreign developer to make it in the world’s number two economy. Ivanhoe Cambridge invested about $96 million (Cdn) in the shopping center and spent more than a year redeveloping the facility. It bought a majority stake from Chinese partner and now 40%-owner Bailian Group in the spring of 2009.
The new majority owner of the six-floor shopping center took over operations of La Nova at the start of 2010 and embarked on the design and development work with construction starting in September in “a very accelerated schedule,” explained Vogel.
The 861,100 square foot (80,000 m2) shopping center in the Hunan capital of Changsha (population 6.6 million), was being used as a department store by Bailian Group, one of the largest domestic retailers in the country. “Even though it was operated as a department store, it was actually designed like a traditional shopping center,” said Vogel.
The shopping center’s redevelopment included the addition of about 6,000 sq. meters of leaseable space by repurposing some atrium mall areas, moving escalators to improve customer circulation, the deepening of some space to accommodate foreign retailers and the addition of a nine-screen cinema to the center. Perhaps the biggest job was making upgrades to the mechanical and electrical system that came with transforming the mall from having one department store-type tenant to a cluster of international anchor-type tenants.
Fully leased, La Nova now counts 85 tenants. The center is anchored by a 269,100-square-foot (25,000 m2) Bailian Oriental Department Store backed up by retailers such as Asobio, Bershka, C&A, H&M, Mango, Pull & Bear, Sephora, Starbucks, Toys ‘R’ Us and Zara.
Vogel said the leasing process is quite different in China as tenants are reluctant to make commitments prior to construction. “Part of it is cultural and some of it just the evolution of the real estate markets,” he said. “In most cases retailers won’t enter serious discussion with you until you have started construction and the reason for that is as an emerging company there is a lot of development that either gets delayed or never gets capitalized to complete so they are very cautious about where they go, they want to see credibility.”
Ivanhoe Cambridge already had some credibility in the market due to its international reputation and presence in China since 2005. Now it can add the success of La Nova to its corporate resume. Vogel said he has noticed a change in how his company is viewed by potential partners and tenants. “As we are starting to look in other cities for new development opportunities, we are being followed by tenants who want to go where we go.
“You get a lot of credit over here once you have actually done something,” he said. “There are a lot of people who come and try and maybe succeed or maybe not. Once they see that a company has figured it out and done it successfully, then you typically get momentum.” Ivanhoe Cambridge is now receiving calls from potential partners and “most importantly,” from various government agencies in different cities.
“They really pay attention to your activity and when they see a brand that is successful, they want to have it also. So we are seeing more activity than we have in the last four or five years that we have been here.”
Ivanhoe Cambridge has another China development well underway. It has a 50-50 joint-venture with Shanghai Forte Land Co., co-owns the Wuxi Parktown residential development, in Wuxi, located 150 kilometers northwest of Shanghai. The 3,700 apartment style development consists of a number of towers being developed in eight phases, two of which have been completed and fully sold.
Ivanhoe Cambridge wants to do further joint development with Shanghai Forte Land, which is primarily a residential developer. “We are working with them to acquire development sites which would be mixed use, which would have both residential and shopping center components.”