Shao Mingxiao, CEO Of Longhu Group: It Is Too Early To Discuss The Mode Of Commercial Real Estate

"After the emergence of the" highway "and" shopping center "in North America, whether it was called the" Railway "or the" big "transportation mode, appeared in North America. (China's commercial real estate) began to find some ways and means, but it is still early to talk about the mode. " Recently, Shao Mingxiao, CEO of Longhu group, said in an interview with the 21st century economic report.

Since the establishment of the commercial real estate department in 2000, Longhu's commercial sector has been in operation for 20 years. Today, among the four major business channels of Longhu group, the commercial sector contributes more than 10% of the profits to Longhu group, becoming the second largest business contribution point outside the residential area.

At present, Longhu has 98 commercial real estate projects. In the first half of 2020, Longhu business realized a rental income of 2.6 billion yuan, a year-on-year increase of nearly 30%. In the "top 100 of China's commercial real estate ranking in 2019" selected by an organization, Longhu commercial ranked fifth.

Shao Mingxiao divides the development of Longhu commerce into two stages: the first 10 years is to accumulate experience and polish the team; since 2011, he has made strategic planning and has operated commercial real estate as a main channel business.

Different from the traditional residential business, the operation of commercial real estate is meticulous and cumbersome, occupying cash flow, and has a long investment return cycle. For quite a long time, it is necessary to "feed back" the residential business. For a comprehensive developer, how to grasp the development rhythm of commercial real estate within the overall development framework of the company, and finally realize the positive cycle of cash flow is an important test.

Despite his brilliant achievements, Shao Mingxiao still has a clear understanding of Longhu business. He believes that in addition to their own capabilities, the development of commercial real estate is also closely related to the large economic environment. Although there is still a distance from "mode", the development space of commercial real estate is very huge under the opportunities brought by new urbanization.

Two "ten years"

The first commercial real estate project operated by Longhu is Beicheng Tianjie, Guanyinqiao, Chongqing. The project was formerly a bus factory with a construction area of about 140000 square meters. When it took the plot in 2001, Longhu was only a local real estate enterprise headquartered in Chongqing, with an annual sales volume of less than 5 billion.

It is reported that when the project was just won, many colleagues in Chongqing were not optimistic. Because the project will take up a lot of cash flow, some peers even think that this project may even drag down Longhu Lake.

At that time, Longhu lacked the experience of operating commercial real estate, and tried to inject various business forms into the project investment. "When it was first opened, it was the" filling shop ". Anyway, everything was filled in, including breakfast. The first wave is filled first, and then adjusted slowly. " Shao Mingxiao said.

By 2005, the operation of Beicheng Tianjie was gradually mature. At that time, the project was voted as one of the "eight landmarks of Chongqing" by Chongqing citizens, and Longhu's confidence in operating commercial real estate was greatly enhanced. Shao Mingxiao believes that the project has laid a very good foundation for Longhu's "holding business" strategy.

By 2010, there are six commercial real estate projects in Longhu. At that time, Longhu commerce had formed three product lines: Tianjie, star mosaic and home mosaic. Among them, Tianjie became the main brand later.

Shao Mingxiao said that the previous decade was a process of accumulating experience and polishing the team. "The most valuable thing is that when Longhu was still so small, he dared to do holding business and operated well."

In 2011, Longhu, which has implemented nationwide distribution, has a sales scale of 38.3 billion yuan, ranking eighth among domestic real estate enterprises. At that time, it happened to be a period of rapid growth of the property market, and Longhu was faced with an important strategic choice: to simply develop residential buildings, to impact the scale, or to add a racetrack to make efforts in both residential and commercial aspects?

At that time, the consensus of the industry was that commercial operations would take up a lot of capital and might slow down the growth of residential business. However, if operated properly, commercial operations can also contribute to long-term stable cash flow and hedge the risk of cyclical fluctuations in the housing market to a certain extent.

After internal discussion, Longhu finally chose the latter. But as a balance, the company puts forward a principle that 10% of the sales return will be used as the upper limit for commercial real estate development. This "iron law" is still in use today.

Li Nan, vice president of Longhu group and general manager of commercial real estate, said that in the second decade, the head effect of Longhu commerce was becoming more and more obvious, and its ability to absorb resources, talents and partners was also strengthened. "We are now on a fast-growing track."

Li Nan said that at present, there are 98 projects in hand in Longhu business, which will exceed 100 by the end of this year. Longhu is expected to achieve the target of 6 billion commercial income in 2020.

Three key points

After 20 years of operation, Longhu business has formed its own routines and methods. Shao Mingxiao summarized the three operation points of Longhu business: low capital cost, capability circle and basic skills.

"Low cost of capital is a prerequisite for commercial real estate, because it is essentially a game of capital costs." Shao Mingxiao said that when the cost of capital is higher than 5%, it is difficult to achieve operating returns.

He pointed out that "capability circle" means to do things within the scope of the team's ability. To expand the ability circle, building a strong team is the key. And "basic skills" refers to improving the "live" well, which is also the last step to realize the project implementation. "There's no trick. It's all hard work."

It is reported that the average period from land acquisition to business opening is 36 months, with the fastest period of 30 to 32 months. In the specific operation, both modular requirements and various practical factors will be taken into account. Among them, since the beginning of exploration in 2003, the development of TOD project guided by metro public transportation has become the specialty of Longhu commerce. By the end of June 2020, Longhu has 65 TOD projects.

In the industry, Longhu business is known as the typical "heavy assets + refined operation". It is not only different from the high turnover represented by Wanda, but also significantly different from the fund model of CapitaLand. Although Longhu's operation mode takes up a large amount of capital and its replication speed is limited, it is conducive to quality control and obtains rich profits.

But Shao doesn't think Longhu business has formed its own model.

From the perspective of the development of the large-scale transportation market, he thinks that with the emergence of the large-scale commercial mode, such as high-speed transportation and so on, it can be called the comprehensive development of the railway industry. At present, China has not yet developed to this stage, and Longhu business has only found some "paths and methods", but has not formed a "model".

But in China, he said, there are broad prospects in this area. With the advancement of new urbanization, urban agglomerations will gradually rise, and the gridded transportation tracks such as urban transportation and intercity transportation will be gradually improved. In addition, the consumption opportunities brought by industrial upgrading and social networking changes, "especially the big consumption opportunities brought by the complementation of domestic and external cycles", will it be possible to form a "mode" of China's commercial real estate.

From a meso perspective, the rise of service industry, the restructuring of manufacturing industry chain and the upgrading of scientific and technological innovation will also bring new operation ideas to commercial real estate. "This is the road that Longhu will take in the next 10 years. At that time, it may be called the mode, but today it is not mentioned."

Shao Mingxiao said that based on this, Longhu is more firm on C2 (commercial operation) main channel. The group has greater confidence to increase investment, but it will also stick to the "red line" of 10% sales return.

For the specific growth target in the next decade, Shao reiterated that the annual rent growth rate would still be 30%.

Li Nan said that in addition to acquiring land in the primary market, the future opportunities for commercial real estate also lie in the acquisition of stock assets, including stock commerce and old reform fields. However, Longhu will focus on whether the financial model is feasible when selecting projects. As for the output of light assets, it is not the focus of Longhu's consideration at this stage.

For Longhu commercial listing expectations, Shao Mingxiao said that for a long time, "there is no need for this.". He stressed that the main problems to be solved in listing are capital, management incentives and new capital platform, but these problems are not urgent for Longhu business.