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March 12, 2015

Behind the H&Q/Genzon deal for Burlingame Point, a strategy for international tech growth

Silicon Valley Business Journal

Nathan Donato-Weinstein

H&Q Asia Pacific is known for investing in a wide range of technology and pharmaceuticals - not to mention bringing Starbucks to China. Now the Asia-focused private equity/venture capital firm is getting into the real estate business on the Peninsula.

The firm, in partnership with the giant Chinese development company Genzon Property Group, paid $48 million last week for Millennium Partners' 18-acre Burlingame Point development site. The companies plan to start construction on the $300 million office project, which could include up to 767,000 square feet of space, as soon as possible.

Chinese investors have been ramping up real estate activity throughout the Bay Area, partly the result of capital flight out of the volatile mainland market. But the Burlingame deal is different, said Robert Shen, an H&Q managing director. He said the game plan is to leverage H&Q's corporate connections - mostly in China, but also in Israel, Europe and the U.S. - to bring in tenants looking to locate in the U.S.

"We have a total global thinking," said Shen in a phone call from Shanghai. It's something H&Q already has done in China, where it partnered with Genzon on a major tech park that's home to Sinogen International Ltd., a biotech company that H&Q funded. (Genzon also became an investor in the company.) Today the Shenzhen High-tech Industrial Park is also home to giant gaming company Tencent (which has operations in Palo Alto).

The company's portfolio is staggering: 30 million square feet of projects completed and another 20 million square feet under development, making it one of the largest developers in south China, executives said.

"Genzon is more than just a commercial real estate developer, and we have many successful track records on residential development," said Hok-Kan Dang, the founder and CEO of Genzon Property Group, in an emailed response to questions. "If there's great opportunity for residential projects, we'll consider it as well."

Executives said they liked the Burlingame site because it was near the airport, close to Mountain View and Palo Alto and is located in an area with good schools - something that helps with recruiting.

"In terms of the strategy, it's really to bring a site where global technology companies feel comfortable coming to the Bay Area and to access the entrepreneurship," said Mark Hsu, a managing director with H&Q. "They could certainly be portfolio companies. We're also in discussions with some overseas tech parks, who may want to encourage some of their companies to locate in the Bay Area."

Skip Whitney, who leads Kidder Mathews' China Services Group, said the deal is significant because most Chinese investors have been doing residential projects. "This is the first major commercial development to be done by a Chinese investor group," Whitney said.

"Traditionally, Chinese investors have been looking for residential. To me, it says they're willing to take more risk in other product type than just residential."

It also represents a big boon for Burlingame, which has been keen on building its office building base, said City Manager Lisa Goldman.

"This is an underutilized gem of a property in Burlingame that's been sitting vacant for years and years," she said. "We're looking forward to having a catalyst out there that will bring in office uses, bring people to the bay front."

Genzon and H&Q said they are looking for more projects up and down the Peninsula. "The key to successful investment is the ability to be able to identify market opportunities before they become too obvious," Dang said. "If a project has great potential to thrive and can generate positive long-term return, then that's the project we're looking for. It's all about the project's ability to deliver exceptional values to its owners and investors."

For the full story, go to Silicon Valley Business Journal.

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