Hi, guys --
So I've spent the last couple of days trying to get a handle on what Nam Tai's Bao'An property might be worth, and have concluded that,
A: Who knows? and
B: Anything more than, say $1/share is completely speculative.
I haven't been able to get the exact location in Google Maps, but it's somewhere around Gushu Station. Paste
Gushu, Shenzhen, Guangdong, China
into Google Maps and you'll be in the right ballpark.
This is (currently!) a pretty slummy industrial area halfway between the airport and the docks. Industrial land in Shenzhen goes for ~$20/sq ft. This is getting rezoned and will hopefully participate in the (one hopes) success of Qianhai Bay development project, but what's it worth *right now*? Why would anyone say more than $100/ sq ft? Valuable Insights provides a comp sale:
On January 22nd Shenzhen Investment Ltd, a publicly traded company in Hong Kong announced that it was acquiring 122,000 square meters of RAW LAND approximately 1.3 million square feet, at this address in Shenzhen for $667 million according to Bloomberg - amazingly, shares closed up 17% on the news, suggesting this price is very attractive
, but that site is right next to Hong Kong -- this seems kind of like applying Brooklyn Heights prices to the South Bronx.
I'd love to believe that there's tons of hidden real estate value here; can anyone convince me?
I've spent some time looking for it as well. After much searching I believe I've located it. For some reason Google translates the road it's on as "Nantai Road" with an "n" instead of "Nam Tai Road." If you map Nantai Road Shenzhen, China, you should be able to find the parcel. It's about 12 acres that is adjacent to the G107 highway and backs up to a canal. Your assessment of the area being a down and dirty industrial area seems accurate from the satellite images.
I've also done research into the Qianhai "Hong Kong Shenzhen Modern Service Zone" and have concluded that Nam Tai's factory is at least 4 miles away from the special 15 sq km zone. I do not doubt that the factory has been re-zoned as the company says, but I'm pretty sure it is not in the actual economic zone. I hope NTE can provide some more clarification on this point.
However, $1 per share is way too low. That price would value the land for about $45m which is $3.75m per acre and $15 a buildable foot for the new zoning. I don't think you can find infill commercial land, industrial or office, in any major city in the US for that price much less one the largest and fastest growing in China. At the end of the day, rents for commercial property drive land value. Office rents in Shenzhen are comparable to Boston at around $60 to $70 psf.
My estimate for fair value is anywhere between $50 per buildable foot to $100 per buildable foot, which would value the parcel between $150m and $300m or around $3 and $6 per share. It may be higher, but since it is not in the actual special zone I wouldn't bet on it at this point.
I hope I'm wrong, but I feel good that a $3 to $6 per share value is a fair range. Anyone who would claim it's worth a lot more needs to make the case that rents will be much higher than in Shenzhen center or even the real Manhattan for that matter.
You have to look at what the land will be in the near future. What it is now means nothing. This is how you make money in real estate. And what the land will become and it's worth changed overnight. Maybe this concept is hard to grasp for those outside China, but this is common coinsurance in China. And even if it is just outside the economic zone (which is a guess as a road with a name that is close to Nam Tai), I don't think you can find anything under $300/ build able sq foot in any desirable parts of Shenzhen I'm not to sure why you think this should go for a discount ??? This should be the most desirable land in all of China. If anything, should be a premium.
NTE is being forced out of the area by the government The entire area is being bulldozed and being rebuilt from the ground up. That should give you a hint on what the land is now and what the land will become. My guess is that it is in the zone otherwise they would most likely not be forced to move out. But even if just outside, why not at least $300/sq foot. Grade A commercial space goes for more than that. You also have to add future appreciation to your assessment of land value. Rent is one factor, but if land appreciates some will even take a loss on rent/cashflow now to make capitol gains. In a rapidly growing expanding real estate market, capitol appreciation overpowers rental income.
Sentiment: Strong Buy
The land is worth more than the entire company. Of course you invest with real estate in mind. The company can shut down all business tomorrow, and with cash on hand, real estate etc, you can make a big profit from stock price now just from that. If stock does not go up from here, the shares will soon be held by real estate investors, not tech investors.
Why do you guys even mention industrial land. This is soon to be (2.5 years new plant is already in operation) Grade A commercial real estate. The land in the area has already traded hands in the $80 million per acre. This value has been set is by real estate investors and this is the value NOW!. NTE has 13 acres. Multiply 13 x $80 million and you get over 1 billion. That is over $20 per share. Also, please note that land already changed hands at these values. You can also sell the land NOW, and lease back for 2 years until new plant is in opeartion. People want to secure the land ASAP. If you wait longer, you will risk paying even more or maybe not getting good location.
They are building Asian Manhattan. It is done. Money is already changing hands and fortune 500 companies are already lined up for real estate space. If you want to do business in China, you must be in there as too many tax benefits and also most important, international business rules/laws. Biggest problem for foreign companies is the rules and how business gets taken advantage of. This international business rules/laws is worth allot of money as it makes this area much more desirable to do business than rest of China.
This area was industrial, and picked because it is close to the Airport, and close to major highways. Access is key and it has that. It was also picked because this is a huge area that CAN be bulldozed to the ground and a new city be built up from the rubble. The value is what it will be, not what it was. And the value of what it will be has been put at $1 billion by real estate investors. The entire area w
Sentiment: Strong Buy
If you can get land in Shenzhen for only $20 square feet I think you should buy as much can afford. I don't know industrial land but even very cheap resident land in Shenzhen at least 10,000 RMB square meter. If math correct that approximate $150 square feet. I not think resident land is 7 time more expensive industrial land.
However should not invest Nam Tai for real estate. Should only invest Nam Tai if believe core business of company. Construction of new facility in Shenzhen not complete until 3 years later. Hard for predict China real estate market and how new Qianhai district do 3 year in future now. Some say every year real estate market in China crash but other say well just deflate self after all government controls impose.
Some also say Qianhai financial district will become very big and important. but other also say location is not very desirable. Unless government give lot business and tax advantage it may not develop to important financial center.
Hi, chan_lei_ha --
If you can get land in Shenzhen for only $20 square feet I think you should buy as much can afford.
That number came from an article by a Chinese academic on US/PRC relative factor prices -- the guys not a real estate broker, but it seemed credible. As always, I desire and accept correction.
Hard for predict China real estate market and how new Qianhai district do 3 year in future now.