(Bloomberg) -- Hong Kong private credit firm Pacific Aegis Capital Management Group Ltd. is locked in a legal tussle with a small local property owner over a deal that failed to materialize. 

PACM Group filed a counter claim on Feb. 23 at Hong Kong’s High Court against private Hong Kong real estate owner Top Gear Investment Ltd., corporate vehicle Pure Wide Ltd. and the director of both of those entities, George Wong, some 10 weeks after the three parties filed a lawsuit against PACM Group. 

The spat highlights the risks of betting on the Asian hub’s real estate market amid a historic downturn. Private debt firms been drawn to the high interest rates they could garner from distressed property developers in the city. As banks have pulled back, private creditors have found a place in the market, with a record $23.4 billion of bank loans coming due this year.

The legal battle began in November, when PACM Group agreed to loan the plaintiffs HK$680 million ($869,000) in two tranches, with a “target release date” of the first tranche “on or before Nov. 16,” according to the legal documents filed to the Hong Kong High Court on Feb. 6 and seen by Bloomberg News. The funds were intended to refinance a HK$550 million Top Gear loan from Bank of China (Hong Kong) Ltd., which was due for repayment on Nov. 17. 

At the heart of the lawsuit is whether PACM Group should receive a HK$6.8 million cancellation fee for an uncompleted private credit deal, according to legal documents seen by Bloomberg News. The three parties assert the deal fell through when the would-be lender failed to provide funds by the agreed-upon date in November. PACM Group denies these assertions. 

Both George Wong, the director of both Top Gear and Pure Wide, and PACM Group declined to comment, citing ongoing legal proceedings, in an emailed responses to Bloomberg News. 

Hong Kong’s property market has been pummeled in recent years by rising interest rates and a population outflow during the pandemic. The market has alo been plagued by weak revenue from commercial real estate is expected to remain subdued in 2024 amid bleak economic conditions and uncertainty over interest rates. 

(Corrects story originally published Feb. 23 to say in the deck headline that the property firm is suing PACM to avoid paying a HK$6.8 million fee)

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