Looking to China's past for today's growth

Looking to China's past for today's growth

By Alexandra A. Seno
Published: April 17, 2007

HONG KONG: It was six hours into yet-another complicated negotiation over real estate on the Chinese mainland but Goodwin Gaw was unruffled.

"In China, to be successful you have to go with the flow," he said solemnly, looking out from his modest harborfront office in the Wanchai section of the city. "Don't go against the government; try to listen to what they say. That takes experience."

In just a few years Gaw, 38, has established himself one of Asia's savviest real estate investors in his role as chairman of Gateway Capital, the boutique property investment company that he founded. "We are very, very happy. Our investors are very happy," he said.

According to Gaw, the privately held company is well on track to deliver the 20 percent average annual return over seven years that he promised investors when Gateway raised $200 million for its first fund in the summer of 2005. Gateway's 19 investors include high-net-worth families from Asia and Europe as well as Wall Street names like the investment advisor Angelo, Gordon & Co. and Wachovia Bank.

Gateway's mandate is "value-added redevelopment work and distressed assets," Gaw said. In the last year, the company completed four deals in Hong Kong: three for rundown buildings that are being renovated and one for a serviced apartment company.

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Across the border, its four deals included the purchase of a shabby seven-story mall on Shanghai's famed Nanjing Road shopping street. Gateway is spending millions of dollars to return the 1935 structure to its former glory, which includes an atrium. The fund also is looking seriously at large-scale housing projects on the mainland, where the volume makes up for lower profit margins.

Most of Gaw's efforts are focused on the mainland, where Gateway is working on at least three more deals - and where, he said, it is a "minor miracle" if a transaction closes in three months.

In February, Gaw partnered with the Swire Group to control a 172,000-square-meter, or 1.85 million-square-foot, commercial development in Beijing's trendy Sanlitun area. The high-profile project involves a total investment of more than $500 million and is expected to be completed at the end of the year. Gateway holds 20 percent of the project, with the rest belonging to Swire, the U.K.-headquartered company that also owns Cathay Pacific Airlines.

Typically, Gateway looks at potential investments valued at a minimum of $20 million, a level that finds the company up against the property arms of the international investment banks operating in China.

"The media thinks that the government doesn't want foreigners to invest in property" at all, Gaw said. "That is contrary to what we are seeing first-hand. The government doesn't want speculators in real estate, but in the value-added sector, deals are being approved."

And, he added, "We are getting government approval quicker than before, though some local government departments don't know how to interpret the new regulations."

Gaw was referring to the rules Beijing has announced over the last two years in an attempt to slow a market that has, in some cases, tripled values in just the last five years. Among them: developers must have in hand at least a third of the expected cost of a project. Gaw is sanguine about the situation: "Regulations are changing on a daily basis and we just have to cope with it."

Gaw was born in California while his father, Anthony, attended graduate school at Stanford University. After earning an advanced engineering degree, the older Gaw moved them all back to Asia and ran the family's Pioneer group of companies, which included interests in shipping and textiles, from Hong Kong.

Goodwin graduated from the University of Pennsylvania with degrees in civil engineering and finance in 1986, and then followed his father to Stanford University, where he earned a master's in construction engineering and management in 1993.

He joined the Los Angeles property firm of Wilson Kennedy, specializing in selling real estate owned by troubled Japanese firms. But he struck out on his own at 27 years old, buying the then-derelict Roosevelt Hotel for $10 million. His father very reluctantly chipped in $1 million and the rest was raised from other family members and friends.

The group poured $20 million more into renovating the Hollywood landmark, where the first Oscars ceremony was held in 1929. The revival of Hollywood in recent years, including the addition of such landmarks as the Hollywood and Highland retail center and the adjoining Kodak Theater, where the Oscars ceremony now is held each year, has added value to the Roosevelt, which is still owned by Gaw's consortium and now is believed to be worth more than $100 million.

In California, Gaw earned his stripes as an investor in distressed property. Through Downtown Properties Holdings, his Los Angeles company, Gaw controls a half-dozen other pieces of real estate, including the Bradbury, a landmark building constructed in 1893 that has been seen in many movies and TV shows, including the 1982 Harrison Ford film "Blade Runner."

Gaw says that, before he returned to Hong Kong about four years ago, he executed some 30 U.S. deals that he estimates are worth about $1 billion.

Gaw began to look at Asia as an investment opportunity after the region's 1997 financial crisis, initially for his family's private portfolio. He bought industrial complexes in Singapore and hotels in Thailand, where he acquired a stake in Dusit Thani, one of the country's largest resort operators. The Gaws also are owners of The Strand, the doyenne of colonial-era luxury hotels in the Myanmar capital of Yangon.

Feeling U.S. real estate had become over-valued, Gaw moved his family back to Hong Kong and founded Gateway, creating a compact management team of five people in an effort to avoid the slow decision-making processes at large international property investment funds.

Humberg Pang, who started the Chinese operations for the British real estate consultancy Savills, runs the Shanghai office and is the company's man on the ground on the mainland. In Hong Kong, the principals include Gaw and his brother, Kenneth, who formerly was an investment banker with Goldman Sachs in New York.

Gaw spends most of his time in Hong Kong, where he renovated an apartment and where his twin four-year-old sons are starting school, although only a third of Gateway's assets are there and there is little opportunity for his investing strategy.

But, Gaw said, "The investors are in Hong Kong, and a lot of the larger deals are made here since the mainlanders like to come to Hong Kong. A lot of successful mainland businessmen now keep homes in Hong Kong; they have driven up the high-end of the property market here."