CapitaLand has entered a 50:50 joint venture with an unrelated third party to acquire about 70% of Pufa Tower in Shanghai, China, for RMB2,752 million (about $546.3 million).

The acquisition marks the group’s first office property in Shanghai’s core Lujiazui central business district in Pudong New Area. It will also immediately contribute to the group’s recurring income.

The property has been identified as a seed asset for a value-add fund, which CapitaLand is setting up to invest in commercial real estate in key gateway cities in Asia.

The 34-storey Pufa Tower has three basement carpark levels. Post-transaction, CapitaLand and its joint venture partner will own levels 8 to 19 and levels 21 to 32 with a total gross floor area (GFA) of 449,645 sq ft, as well as 61 car park lots with property title. Pufa Tower’s ground floor lobby and refuge floor on level 20 are co-owned with Shanghai Pudong Development Bank, which owns the rest of the building.

“Continual high demand for quality commercial properties in China’s top tier cities, coupled with low supply, have made the renewal of ageing commercial assets a compelling investment strategy in these markets,” says Lucas Loh, president (China & Investment Management), CapitaLand Group.

While Pufa Tower has not had a major renovation since its completion in 2002, the group sees potential in upgrading the asset’s specifications, tenant mix and operational efficiencies.

Including Pufa Tower, CapitaLand now owns and manages 21 commercial properties in Shanghai, spanning close to 20.45 million sq ft in GFA.