Formerly known as Singapore Airlines (SIA) building, the 35-storey office tower has been selected by CLSA Capital Partners to do exclusive diligence for purchase. The pricing is above S$530m or S$1800 psf based on net lettable area (NLA) of nearly 293,270 sqft. The maximum development potential has been tapped. The zoning of the site is commercial use with a balance lease tenure of 76.5 years.
SINGAPORE sovereign wealth fund GIC has confirmed news that its affiliates will buy US industrial property company IndCor Properties Inc from Blackstone Group LP for US$8.1 billion, making it yet another major real-estate investment for the fund.
A GIC spokesman confirmed the purchase on Tuesday, following Blackstone’s announcement of the deal.
The move gives GIC and its affiliates a significant presence in the US warehousing space, thanks to Chicago-based IndCor’s ownership of some 117 million square feet of industrial real estate throughout the country.
The deal also puts paid to IndCor’s plans for an initial public offering. Blackstone had been intending to exit IndCor through a share offering that would have valued IndCor at about US$8 billion, but clearly found the sale to GIC – a more immediate realisation of its investment – the more attractive alternative.
The investment by GIC and its affiliates comes at a time when demand for commercial real estate, and prices for such real estate, in major markets is rising. Warehouse properties and logistics-services companies are fetching increased interest from funds as global trade grows. Brookfield Property Partners LP and TPG Capital have been on the acquisition path for such assets too.
Blackstone formed IndCor in 2010, acquiring property when values crashed after the global financial crisis. IndCor now has the largest portfolio of wholly owned warehouses and distribution centres in the US, operating in 29 key markets in 23 states.
“We built IndCor through 18 acquisitions to be one of the largest industrial real estate companies in the United States,” said IndCor CEO Tim Beaudin in Blackstone’s statement. “We are excited about the company’s future prospects under new long-term ownership with GIC.”
GIC declined to comment further on the deal, which is expected to close in the first quarter of next year.
The sovereign wealth fund has been very active recently in beefing up its global real-estate portfolio, which accounted for 7 per cent of its assets in its most recent annual report.
Just last month, it announced two investments in New Zealand. In the first, it partnered with the country’s Goodman Property Trust to co-invest in Auckland’s Viaduct Quarter; and, in the second, it agreed to buy a 49 per cent stake in five malls in the country from Scentre Group in a transaction valued at NZ$1.04 billion (S$1.07 billion).
In October, it announced that it bought the entire office component of Pacific Century Place Marunouchi – situated next to Tokyo Station – with a gross floor area of 38,840 sqm of net lettable area, for US$1.7 billion. It also acquired the remaining half of the RomaEst Shopping Centre in Italy, to gain full ownership of the mall, for an undisclosed amount; and it agreed to pay more than 200 million euros (S$325 million) for a 30 per cent stake in Spanish real estate firm Gmp.
The month before, it agreed with Indian developer Brigade Enterprises to jointly invest 15 billion rupees (S$317 million) in residential real estate projects in south India.
In January, it teamed up with New York-based developer Related Cos and the Abu Dhabi Investment Authority to buy Time Warner Inc’s headquarters in Manhattan for US$1.3 billion. And, the month before that, it acquired Blackstone’s 50 per cent stake in London’s Broadgate office complex for a reported £1.7 billion (S$3.5 billion).
Meanwhile, Blackstone has been stepping up its real-estate sales, as it prepares to raise its next global property fund. The private-equity giant has been reducing its stakes in its publicly listed entities, Brixmor Property Group Inc – the second-largest US shopping centre landlord – hotel group Hilton Worldwide Holdings Inc, and lodging company Extended Stay America Inc.
Blackstone has said it plans to raise at least as much as US$13.3 billion – the amount raised in its last fund – for its next fund.
CITY Developments Ltd (CDL) executive chairman Kwek Leng Beng has warned that the current subdued state of the Singapore housing market particularly in the high-end segment, if it continues, could ignite fire sales.
Mr Kwek made this point in CDL’s third quarter results statement. CDL posted net earnings of S$127.21 million for the third quarter ended Sept 30, 2014, up 4.7 per cent from the same year-ago period. Revenue rose 58.3 per cent to S$1.32 billion.
“The domestic residential real estate market will need to battle headwinds as sentiments remain subdued with little signs of property curbs being tweaked or removed in the near-term. Transaction volumes and prices continue to face downward pressures as homebuyers maintain a wait-and-see approach,” he lamented.
The high end market, in particular, remains subdued with prices still below their 2008 peak. “Average residential rents across all market segments, particularly the high-end . . . are on the decline, coupled with a weak secondary market.
“From the group’s experience, having gone through many property cycles, if this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals may have difficulty servicing their loans, possibly leading to forced fire sales,” Mr Kwek said.
On a more positive note, Mr Kwek noted that savvy investors who believe in Singapore’s prospects will continue to read positively into the property market with a medium to long-term perspective. “New launches that are priced carefully will continue to sell, as buyers only need to make progressive payments based on stages of construction, and they are confident that the market will recover over time,” he added.
The group can also count on two “shining stars” – the office and hotel markets. “Office and hotel properties have become most desirable assets. Demand for Grade A office space in Singapore is improving; and capital value for hotels has increased significantly, even though earnings have not caught up yet. With over 120 hotels globally, the group is able to counterbalance by geographical spread,” Mr Kwek said.
In the first nine months of this year, CDL’s net earnings shrank 17.1 per cent to S$384.74 million despite revenue surging 20.3 per cent to S$2.92 billion.
CDL said that the earnings drop was due to absence of significant divestment gains from non-core investment properties as compared to the corresponding period, which had accounted for gains largely from the sale of 100G Pasir Panjang and strata units in Citimac Industrial Complex, Elite Industrial Building I, Elite Industrial Building II and GB Building. “Excluding such divestment gains from YTD Sept 2013, on a like-for-like comparison, the group’s core earnings would have increased by 25.5 per cent for YTD Sept 2014,” CDL said in its results statement.
Luxury project Marina One Residences opened its doors to the public on Saturday (Oct 11) but saw a lukewarm response, with only 20 units sold. Its developer had cleared 300 units in the past week during private sales.
Business owner Lim Jit Song, who was at the public launch, was looking for a unit for investment purposes. The 39-year-old eventually settled for a S$1.7 million one-bedroom unit on the 13th floor, which works out to almost S$2,300 per square foot (psf).
Mr Lim said: “First of all, the location is very good, it is in the Marina area. Price-wise, it is also very reasonable. We saw the furnishing and it is very good – we are very happy with that. There are three MRT stations around, and amenities within walking distance. The last point – the developer is very dependable. So with all these reasons … we decided to go for it.”
The project is a joint-venture between Temasek Holdings and Malaysia’s state investment arm Khazanah Nasional. It is their second residential development after DUO Residences in Bugis, which was launched in November last year. Buyers had snapped up more than 60 per cent of DUO’s 660 units in just three days. Prices had averaged S$2,000 per square foot, with over S$2,600 per square foot for a studio apartment.
Private sales for Marina One started on October 3 to those purchasing multiple units. The developer said the majority of its buyers are Singaporeans (70 per cent). Malaysians make up 20 per cent, while the remaining 10 per cent are Indonesians and Chinese.
One analyst described the sales as “commendable” for the current market, but said prices – which now range from S$1,960 to S$3,100 psf – might need to be lowered to further boost demand.
Ku Swee Yong, CEO of Century 21 Singapore, said: “The current competition of the unsold units along the Shenton Way stretch, up to Tanjong Pagar, as well as future Government Land Sales of parcels around Marina One would affect investment sentiments in the project.” Mr Ku said units from older projects nearby are going at competitive prices, averaging about S$2,000 to S$2,500 psf.
The launch of Marina One comes on the back of lacklustre sales in the city area, weighed down by property cooling measures. In the second quarter of this year, 95 high-end homes were sold, down from 121 units in the previous quarter and 365 units in the same period last year. Prices in the city area have also declined for the fifth consecutive quarter since Q1 2013.
Its developer is also taking a cautious stance. The project has two residential towers comprising about 1,000 units, but only one tower is currently open for sale.
SINGAPORE’S industrial property market is expected to remain mixed in the fourth-quarter of 2014, given the presence of persistent downside risks, which include uncertainties surrounding the global economic recovery and the traditional year-end holiday lull.
Colliers International on Thursday said in its report that replacement anchor sub-tenants will be harder to find when secondary industrial space becomes available from expiring sale and leaseback transactions.
Chia Siew Chuin, director of research and advisory at Colliers, said current anchor sub-tenants leasing space from third-party facility providers will enjoy stronger bargaining power in lease-renewal negotiations.
“This could hurt rents and yields achievable by the third-party facility providers in the medium term,” said Ms Chia, who added that rents for business parks and independent high-specs buildings are expected to hold steady in Q4, similar to Q3, mainly because of a tightening in supply.
But the prime conventional industrial segment, would probably have rents easing marginally further in Q4 on supply pressures, said Ms Chia.
Sale of strata-titled industrial properties is expected to remain slow, with the likelihood that the number of caveats lodged for the entire year will be below the 2,000-level.
The last time fewer-than-2,000 caveats were lodged for strata-titled industrial properties was in 2009 at about 1,500.
Ms Chia added that the average capital values of prime freehold conventional warehouse and factory space are expected to remain at their current levels in the next quarter.
The mixed outlook comes on the back of a muted industrial property market here in Q3, despite a stable stream of leasing activity.
Sale transactions of strata-titled industrial properties in Q3 fell by about 36 per cent quarter-on-quarter to 203, according to URA Realis caveats.
DTZ Research said this is way below the 672 strata-titled units that were sold in the same period last year. So far, there has been 842 transactions this year, much lower than the 1,986 in the same 2013 period.
DTZ said the decline in transactions was due to fewer new launches, seller’s stamp duty measures, as well as the implementation of the Total Debt Servicing Ratio (TDSR) framework last June.
Both average capital and rental values of conventional industrial space have also stagnated, while business park rents bucked the trend and continued to rise in Q3.
The average monthly gross rents for business parks continued to increase by 2 per cent quarter-on-quarter in Q3 to S$5.00 per sq ft, said DTZ.
Still, business park rents are lower than office rents and the former is drawing more office occupiers, said Cheng Siow Ying, DTZ’s executive director of business space.
“The difference in rents can be as high as 30 per cent, compared with the average office rents in the decentralised areas,” she said.
The downward pressure on rents for conventional industrial space might continue, said DTZ.
A total of 40.7 million sq ft of industrial space is expected to be completed by 2016, of which 27 per cent are multiple-user factories.
Lee Lay Keng, DTZ’s regional head (South-east Asia) research said the large supply in 2016 is “likely to restrain rental growth”.
“The older business parks may find it increasingly difficult to retain and attract tenants alongside these newer business parks,” said Ms Lee.
CBRE said in its report that the difference in rents between business parks located in the city fringe and those in the rest of the island has widened further in Q3 this year.
Michael Tay, executive director, office services at CBRE said: “Occupiers are more keen on higher specifications, quality developments which the city fringe has been able to provide. The location and connectivity are also important considerations which prompt occupiers to pay the premiums in rent. “
New rules proposed for the booming real estate investment trust (Reit) sector will bring more disclosure over executive pay, shake up the fee structure and ensure that the interests of unitholders are paramount.
The proposals were unveiled by the Monetary Authority of Singapore (MAS) yesterday in a consultation paper aimed at strengthening what has become an industry with assets of around $61 billion and a large following among retail investors.
Reit managers said some of the proposals could benefit the industry and investors, although others might make it tougher for trusts to compete.
One key proposal is that managers and directors should have a statutory duty to prioritise investors’ interests over those of the Reit manager and sponsor.
This could help guard against conflicts of interest, and may prevent Reits from overpaying for assets bought from their sponsors, for instance.
It is also proposed that Reits change how a manager’s performance fees are structured so that they are aligned with investors’ long-term interests.
Reits may also be required to disclose more information in their annual reports, including how much income support they get.
Income support involves the Reit sponsor stepping in to top up a property’s income if it falls short of certain thresholds. But the practice could lead to the property being overvalued.
The suggested rule changes would also give Reits more flexibility to develop property.
Trusts can now develop a project only if the cost does not exceed 10 per cent of the trust’s total asset size, but that limit could be raised to 25 per cent.
Ascendas Reit (A-Reit) told The Straits Times yesterday that the move to address any perceived potential conflicts of interest could benefit the market.
“The interests of unitholders must rank supreme,” an A-Reit spokesman said in an e-mail.
A-Reit also welcomed the higher development limits, but pointed out that disclosing certain information about leases “may compromise a Reit’s strategy and competitiveness” and therefore may not benefit unitholders.
“In the longer term, it may be necessary to consider an independent Reit legislation to govern the industry,” A-Reit added.
Other Reits said they were still reviewing the consultation paper.
There are 33 Reits in Singapore, accounting for around 8 per cent of the Singapore Exchange’s total market value.
Reit market watchers said the proposals would bring industry practices and requirements closer to those already in place for listed corporate boards.
“There will be greater clarity on the duty of Reit managers,” said Mr Robson Lee, partner at law firm Shook Lin & Bok.
Ms Rachel Eng, who heads the Reits team at law firm WongPartnership, said: “Hopefully, the market and the MAS will identify the right combination of rules that will enhance corporate governance and accountability.”
The consultation paper is available on the MAS website. Members of the public have till Nov 10 to send their feedback.
Business parks remain a bright spot amid the gloom surrounding industrial property, with rents moving up in the third quarter, said consultants DTZ.
It noted that average monthly rent was $5 per square foot (psf) in the three months to Sept 30 – up 2 per cent on the second quarter, a rate of growth that has been maintained all year.
The demand for business parks was due in part to “the spillover from higher office rents”, DTZ reported yesterday.
“There are more cases of qualifying office occupiers who are drawn by the lower business park rents relative to office rents,” said Ms Cheng Siow Ying, DTZ’s executive director of business space. She noted that the difference in rent can be as high as 30 per cent.
Ms Cheng cited Galaxis, a business space in one-north slated to be completed by the end of the year. It has already garnered a pre-commitment rate of more than 40 per cent, with signed leases from firms such as Canon, Oracle and Electrolux. “The movement of qualifying office occupiers to business parks is expected to continue as average office rents continue to rise,” she added.
While business parks are enjoying better times, average monthly rent for some conventional industrial space has stayed flat. First-storey rents came in at $2.20 psf from the second quarter while those for upper floors stayed at $1.80 psf.
There were 203 sales of strata-titled industrial property in the third quarter, down about 36 per cent from the second quarter. There have been 842 transactions so far this year, significantly lower than the 1,986 in the same period last year.
A report from CBRE, also out yesterday, found that the rent gap between business parks in the city fringe and those in the rest of the island widened to 33 per cent in the third quarter, up from 29 per cent in the second quarter.
“Occupiers are more keen on higher specifications and quality developments which (business parks in the) city fringe have been able to provide,” said Mr Michael Tay, executive director of office services at CBRE.
“Location and connectivity are also important considerations which prompt occupiers to pay the premiums in rent.” He added that the difference in rent for business parks in the city fringe and those in the rest of the island is expected to “stabilise”. “Rent in new developments will edge up but this increase is likely to be restrained by older assets that offer more competitive rents.”
AT LEAST two sizeable strata office deals have been done lately in the Raffles Place area: Level 19 of Samsung Hub, and half of the 11th floor at Prudential Tower.
The 19th floor of Samsung Hub along Church Street has been sold for nearly S$41.7 million or S$3,175 per square foot (psf) based on the strata area of 13,121 sq ft. The buyer is said to be a foreign party purchasing the space purely as an investment. Market watchers say that might have resulted in the psf price being lower than the S$3,225 psf fetched for the whole of the 18th floor spanning 13,132 sq ft, sold last month.
In that transaction, which amounted to S$42.35 million, the buyer is believed to an Asia-based group involved in the oil and gas business among others, looking to occupy the space; existing leases on the floor run out in phases starting later this year. An owner occupier may be more motivated to pay a higher price than an investor. The lease on the entire 19th floor was recently renewed until 2017. The net yield to the buyer is believed to be sub-3 per cent.
The 18th and 19th floors each comprise six strata units.
The seller of both 18th and 19th floors is Church Street Holdings – a partnership between Buxani Group and a group of offshore investors advised by Mukesh Valabhji of Seychelles-based Capital Management Group.
With the latest sale, Church Street Holdings has sold five of the six floors in the 999-year leasehold building that it acquired from OCBC in 2007 for S$1,560 psf or S$122.4 million. The six floors were Levels 16-21. The company is now left with Level 21, for which it is said to have received unsolicited offers.
Savills is said to have brokered the sale of the 19th floor.
Over at Prudential Tower, which is on a site with about 80 years’ balance lease, half of the 11th floor space, under a single strata unit of 5,952 sq ft, has been sold for S$2,750 psf or S$16.368 million. CBRE brokered the sale, which was made to a Chinese construction group that currently occupies rental premises elsewhere in Singapore and plans to eventually occupy the Prudential Tower space it is purchasing. The space is currently leased to two tenants; the leases are said to expire next year.
The unit is being sold by a consortium that earlier this year bought Keppel Reit’s 92.8 per cent stake in the building for S$512 million or nearly S$2,316 psf on net lettable area.
Comprising KOP Limited, Lian Beng Group, KSH Holdings and Centurion Global, the consortium is said to be preparing to launch an expression of interest exercise for the other half of the 11th floor of Prudential Tower, spanning 5,102 sq ft under a single strata unit. CBRE will be marketing the unit in Singapore, while Savills will do the overseas marketing. The pricing expectation is expected to be in excess of S$2,750 psf.
Also available for sale is a half-floor unit, also 5,102 sq ft, on Prudential Tower’s 16th floor owned by the consortium. Galven Tan, director (investment properties) at CBRE, noted that the strata office market is still seeing keen buying interest from potential owner occupiers.
Market watchers, note, however, that since the total debt servicing ratio framework was introduced in June last year, strata office investors have found it harder to get loan approval compared with those buying the space for their own use.
In yet another sign of a stalemate between buyers and sellers, resale volumes of private condominiums have fallen to levels last seen during the Global Financial Crisis, with the bloodbath of declines seen splattered islandwide.
While sellers with strong holding power seemed unwilling to let go of their units at much-lower prices, District 18 in the east and District 27 in the north appear to have held up well in resale volumes for the second quarter.
District 18, which comprises Tampines and Pasir Ris, saw resale volumes inch up 5.6 per cent in the second quarter this year to 57 transactions compared to the year-ago period before the total debt servicing ratio (TDSR) kicked in on June 29, 2013.
Resale volumes of private condos in District 27, which covers Yishun and Sembawang, were flat at 18 transactions in the second quarter, compared to the same quarter last year.
Their resilience came against a plunge in resale volumes islandwide.
Total resales of private condos stood at 1,314 units in the second quarter, accounting for 31.9 per cent of all private non-landed residential transactions. This is moderately higher than the 29.9 per cent in the same quarter last year but lower than the 40.9 per cent in the fourth quarter of 2012.
District 7 comprising Middle Road and Golden Mile and District 19 covering Serangoon Garden, Hougang and Punggol saw the biggest falls in resale volumes across districts. Transactions in District 7 fell to two units in the second quarter from 12 in the second quarter last year while that in District 19 plummeted to 57 units from 164.
The comparisons of resale volumes before and after TDSR are based only on caveats lodged, which typically represent some 80 per cent of the market. This illustration excludes new sales as they are driven mainly by new launches that may not have taken place in certain districts. The heterogeneity of property units also prevent direct comparisons on price movements over time without controlling for quality differences through constructing an index, a weighted scheme or tracking repeat sales.
Nicholas Mak, executive director of SLP International, noted that much of the resales caveats were for family-size units. “The marketing activities of new projects in that district could have attracted buyers, who may have later decided to buy resale properties as they were cheaper in per square foot (psf) terms.”
New launches in District 18 included City Developments’ Coco Palms in Pasir Ris, which has moved over 560 units at a median price of S$1,020 psf since its launch in May. MCC Land managed to sell more than 100 units at The Santorini in Tampines since its launch in April at a median S$1,113 psf, according to URA’s developer sales data. In comparison, median prices of resale units in District 18 stood at S$897 psf in the second quarter.
The lack of new launches in certain districts could also have the converse effect on the resale market – as seen in Districts 19 and 12 (Balestier, Toa Payoh, Serangoon), Mr Mak added.
R’ST Research director Ong Kah Seng noted that buying interest for homes in Pasir Ris is supported by well-tested leasing demand, especially from the Changi Business Park. The decentralisation of the banks’ non-core back-office operations to the business park and increased foreign professionals in the technology sector have also expanded the potential tenant pool in the eastern part of Singapore, he noted.
At the other end of Singapore, District 22 (Jurong) also registered a marginal 4.3 per cent year-on-year drop in resale transactions of private condos in the second quarter, possibly finding some support from renewed interest in the area given URA’s masterplan to transform Jurong Lake District, consultants observed.
All transactions (new sales, resales and subsales) involving private condos have slumped 40.7 per cent year-on-year in the second quarter to 4,118 – similar to the levels last seen during the 2008-2009 Global Financial Crisis.
Based on the URA property price index for non-landed homes, prices of private condos transacted in the second quarter have fallen to levels last seen in the fourth quarter of 2012. Prices in the Core Central Region (CCR) fell by a larger magnitude to a level similar to that in the fourth quarter of 2010.
OrangeTee head of research and consultancy Christine Li noted that the drop in foreign purchases due to the additional buyer’s stamp duty (ABSD) has hurt the CCR market segment, as foreign buyers make up a significant portion of this segment.
“Secondly, the implementation of loan restrictions such as loan-to-value limits and the TDSR framework have hurt properties with high quantums,” she added. “As such, CCR properties have not held up as well as RCR (Rest of Central Region) and OCR (Outside Central Region). This trend is likely to persist until current cooling measures are tweaked.”
But given the exuberant run-up in property prices since the second half of 2009, sellers who sold their units recently are unlikely to have suffered a loss, though they could be making less profits than if they had sold their units last year, consultants noted.
A random sampling by SLP International on resale transactions in the second quarter showed that most of the sellers did not incur losses in the resale market because a majority of them bought their units more than three years ago when the prices were cheaper and they did not have to pay the seller’s stamp duty for properties that they have held for more than four years.
LED by rising rents and limited supply in the near-term, investment activities are expected to hold up for office and retail space. The absence of additional buyer’s stamp duty (ABSD) and seller’s stamp duty (SSD) in the commercial space is also making this segment more appealing to investors.
Knight Frank executive director Mary Sai noted that the Singapore retail and office markets are among top picks in Asia for foreign investors, who face heftier ABSD than locals in the residential market.
“Robust economic growth, stable government, low unemployment, strength of Singapore dollars, are some compelling pull factors for foreign investors in our commercial properties,” she said at the National Real Estate Congress yesterday.
“Another reason why people move over to commercial property is because the absolute sum of capital to be paid is affordable,” Ms Sai added, citing the example of Alexandra Central, which had 43 per cent of transactions below S$1 million. The project that was launched in January last year had 98.3 per cent of strata-titled retail space sold out within one day.