Hwa Hong to divest its largest Singapore asset, OneTen Paya Lebar, for $160 mil and reinvest abroad

/ EdgeProp Singapore |

September 14, 2023 12:00 PM SGT

OneTen Paya Lebar is on the market for $160 million, or $1,029 psf based on gross floor area (Photo: Samuel Isaac Chua/EdgeProp Singapore)

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A relic of the 1980s, the former warehouse at 110 Paya Lebar Road underwent a significant asset enhancement exercise in 2013. It was repositioned by the landlord, Hwa Hong Corp, as OneTen Paya Lebar, an eight-storey hi-tech industrial building. “The warehouse had high ceilings and good bones,” says Ong Eng Yaw, group managing director of Hwa Hong Corp.

Upon completing the asset enhancement, Hwa Hong leased the building to former global telecom service provider Pacnet in 2013. Brenda Ong, executive director of logistics & industrial, Cushman & Wakefield (C&W), a veteran in industrial real estate, handled the leasing of OneTen Paya Lebar to Pacnet on a “shell and core” basis — as a bare building, with the tenant to complete the fit-out works according to their own needs.

“OneTen Paya Lebar was perfect for Pacnet, which was looking to lease an entire building for data centre use,” relates C&W’s Ong. “OneTen Paya Lebar was on the market and met all the specifications that a high-spec data centre needed: high floor load, sizeable floor plate for the cooling systems, and high ceilings.”

In December 2013, it was certified as a Tier 3 data centre in terms of uptime as it has multiple paths for power and cooling and redundant systems, which allows staff to work on the systems without taking them offline. It attained a Green Mark Gold Plus certification from the Building and Construction Authority and the Infocomm Development Authority of Singapore.

Hwa Hong’s Ong: We see this as the right price and an opportunity to recycle our capital (Photo: Samuel Isaac Chua/EdgeProp Singapore)

When Australian telecoms giant Telstra acquired Pacnet in 2014, the data centre facility was named Telstra Singapore Paya Lebar SGCS2. In April 2020, data centre and hybrid computer solutions company Big Data Exchange (BDx) bought over the facility from Telstra.

BDx upgraded the building and added an extra 8MW of IT capacity in 2021, enhancing total power capacity to 14MW, up from 3.6MW previously, and improving energy efficiency by 20%. Last year, BDx moved its global headquarters to OneTen Paya Lebar.

Singapore was selected as the new global headquarters primarily because of the island state’s infrastructure, global connectivity through international undersea cables and Next Generation National Broadband Network, says BDx CEO Braham Singh in a company release. He also attributes the move to Singapore’s “vibrant ecosystem”, stability and skilled tech talent pool.

BDx’s current lease at OneTen Paya Lebar will expire in 2028. However, the company can renew it for another 5+5 years. Hwa Hong had built-in rental escalations in the original lease a decade ago.

BDx is the current tenant of OneTen Paya Lebar and the lease will expire in 2028. However, the company can renew it for another 5+5 years (Photo: Cushman & Wakefield/Savills Singapore)

Divestment of OneTen Paya Lebar

OneTen Paya Lebar is an industrial building zoned for “Business 1” use, with a gross plot ratio of 2.5 under the 2019 Master Plan. The property sits on a freehold site of 58,986 sq ft, with a gross floor area (GFA) of 155,503 sq ft based on a gross plot ratio of 2.63.

URA has approved the property’s use as a co-location data centre and for telecom services with ancillary office use since August 2014. The property was valued at $105 million at the end of April 2022.

OneTen Paya Lebar is on the market at a price starting from $160 million, or upwards of $1,029 psf, based on GFA. “The tenant has created significant value for the property,” says Hwa Hong’s Ong. “We see this as the right price and an opportunity to recycle our capital.”

C&W and Savills Singapore are the joint marketing agents for the sale of the property. At the asking price of $160 million, the buyer of OneTen Paya Lebar will have a gross rental yield of about 3%, says Galven Tan, deputy managing director of investment sales and capital markets at Savills Singapore. “If the tenant renews the lease, the new owner will be holding the core investment and looking at the long-term vision and growth of the Paya Lebar area,” says Tan.

In London, Hwa Hong recently completed the boutique office development at 20 Garret Street, which is now available for lease (Picture: Hwa Hong Corp)

Family legacy

Hwa Hong was founded by Ong’s grandfather, Chay Tong, as a manufacturer and trader of edible oils, and was incorporated in 1952. It was converted into a public company in 1969 and has since morphed into an investment holding company with real estate investments in Singapore and London, UK.

Chay Tong had two wives, six sons and seven daughters. The six sons and their family members were all shareholders of Hwa Hong. Last year, Ong and his father, Choo Eng, the former group managing director of Hwa Hong, mounted a successful takeover of Hwa Hong together with three other parties: two family offices, namely Roswell Assets and Crystalic Star Global, along with private equity firm Dymon Asia.

Hwa Hong was delisted on Sept 26, 2022. As the group managing director of a privatised Hwa Hong, Ong wants to transform the business and focus on being a real estate investment manager with its own balance sheet to invest alongside other investors. “That was always the vision we had for the business — to drive capital efficiency and generate new income streams in the form of a fee income,” says Ong.

That led to the creation of Shorea Capital in December 2018 as Hwa Hong’s fund management arm. CEO Eugene Teo helms Shorea Capital.

“Post-privatisation, we have a lot more flexibility in our capital structure,” says Ong. “We are using the Shorea Capital resources to help us manage the assets now, which also helps in terms of having a leaner management structure.”

Shorea Capital London Office Fund acquired 188 City Road, a heritage building which is being refurbished into a modern ESG-compliant office building (Photo: Hwa Hong Corp/Shorea Capital)

Looking offshore — the UK and Australia

In 2021, Hwa Hong invested GBP15 million for a 50% stake in Shorea Capital London Office Fund. The investment was a combination of cash and its 50% interest in a London boutique office development at 46 Loman Street.

Shorea Capital London Office Fund is a private equity real estate fund that invests in value-add opportunities in Central London and focuses on commercial property. The fund raised GBP50 million in equity and is now fully invested.

Besides 46 Loman Street, the fund has also acquired 188 City Road, which is being refurbished into a modern ESG (environmental, social and corporate governance) compliant office building. “It’s part of the fund’s brown-to-green value-add strategy”, says Ong. The two properties will be divested at the end of the five-year fund life.

Hwa Hong has also invested in 20 Garret Street, where it refurbished a former warehouse into a boutique 18,128 sq ft, Grade-A office building.

20 Midtown in London has been extensively refurbished and substantially leased (Photo: Hwa Hong Corp)

Another Hwa Hong investment is 20 Midtown, which has been extensively refurbished into a five-storey commercial building with 23,000 sq ft of Grade-A office space. 20 Midtown is substantially leased, while 20 Garret Street was completed recently and is now being leased.

In Australia, Shorea Capital is the development adviser of Melbourne Walk, a mixed-use project and redevelopment of the former The Walk Arcade. Melbourne Walk will have three levels of retail space, two hotels with 450 rooms — the 180-room Hotel Indigo and the 270-room Holiday Inn, a rooftop bar and private gym. It is a A$200 million ($175 million) rejuvenation of Melbourne’s Bourke Street Mall by Steadfast Capital.

“The returns on properties in the UK and Australia have been higher than what we can achieve here in Singapore,” says Ong.

Besides boutique commercial buildings, Hwa Hong is also interested in investing in the living sector in the UK and Australia, especially the purpose-built student accommodation (PBSA) segment. “In the UK, we recently launched a UK PBSA fund that will look at opportunities across the UK, including London,” says Ong. “In the PBSA space in Australia, we will consider cities such as Sydney, Melbourne, Brisbane and Perth.”

Ho Bee Land divested its two freehold industrial buildings at 12 Tannery Lane and 31 Tannery Lane, HB Centre I and II, respectively, for $115 million in March (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Freehold strata industrial units in Paya Lebar hit $2,204 psf

Ong is intent on divesting Hwa Hong’s largest asset — OneTen Paya Lebar — to free up capital for its overseas investments.

In the vicinity of OneTen Paya Lebar, prices of strata-titled, freehold multiple-user factory units at AZ@Paya Lebar have already crossed $2,200 psf, Savills’ Tan points out.

Based on caveats lodged, a 1,098 sq ft strata-titled unit on the first floor of AZ@Paya Lebar changed hands for $2.42 million in March. At $2,204 psf, it is a new high in terms of psf price for AZ@Paya Lebar. In April, another first-floor unit, at 1,507 sq ft, was sold for $3.32 million or $2,203 psf. The latest transaction is for a 1,238 sq ft unit on the ninth floor that changed hands for $1.92 million ($1,551 psf) in July.

Meanwhile, at another freehold, multiple-user factory, Citipoint @ Paya Lebar, a 7,729 sq ft, strata-titled unit on the first level fetched $12.1 million ($1,566 psf) in July, which is also a new high on a psf basis for the building.

Savills’ Tan: The advantage of OneTen Paya Lebar is that the underlying asset is a freehold industrial property (Photo: Samuel Isaac Chua/EdgeProp Singapore)

When it comes to the purchase of entire freehold industrial buildings, this March saw Singapore-listed property investment and development company Ho Bee Land divest its two freehold industrial buildings at 12 Tannery Lane and 31 Tannery Lane, HB Centre I and II, respectively, for $115 million. The buildings are located off MacPherson Road in District 13. The buyer is said to be an unrelated party.

The 10-storey, hi-tech industrial building at 12 Tannery Lane (HB Centre I) has a GFA of 100,611 sq ft, while the eight-storey light industrial building at 31 Tannery Lane (HB Centre II) has a GFA of 39,838 sq ft. With a combined GFA of 140,449 sq ft, the $115 million sale price reflects a unit price of $819 psf.

In June 2022, Lian Beng Group purchased Food Empire Building at the junction of Playfair Road and Harrison Road in the neighbouring Tai Seng area for $49.25 million. The 11-storey, freehold industrial building has a GFA of 51,766 sq ft. Hence, the sale price translates to a unit price of $951.4 psf based on GFA. C&W brokered the sale.

OneTen Paya Lebar’s freehold tenure and its long-term data centre tenant are expected to draw investors and family offices, says Savills’ Tan.

Cushman & Wakefield’s Ong: A critical advantage of OneTen Paya Lebar is that power has already been secured by the existing tenant for data centre operations (Photo: Samuel Isaac Chua/EdgeProp Singapore)

Data centre demand at ‘an all-time high’

Besides investors, C&W’s Ong sees OneTen Paya attracting other data centre owner-operators. “Industrial buildings with data centre use are hard to secure,” she observes. “Even though there is an existing tenant in place, the asset could draw data centre owner-operators with a long-term vision for the asset.”

The two most significant concerns for data centre operators are space and power capacity. “A critical advantage of OneTen Paya Lebar is that power has already been secured by the existing tenant for data centre operations,” says C&W’s Ong. “Being close to the Tai Seng area is another plus, as a data centre cluster is already there. Hence, the operator can expand and create a data centre hub at the site.”

Singapore had imposed a three-year moratorium on new data centres in 2019. When the moratorium was lifted last year, new development standards were established to promote sustainable development and management of data centres. “It could serve as a blueprint for the region in time to come,” according to C&W’s Aug 23 data centre update.

In C&W’s Global Data Centre Market Comparison 2023 report, Singapore was ranked third globally, with Northern Virginia and Portland in the US tied in first place. Hong Kong, another popular destination for data centres in Asia Pacific, has moved to fourth place. “Despite land shortage being a major roadblock for some organisations, data centre demand in Singapore remains at an all-time high,” says C&W.

OneTen Paya Lebar was put up for sale by expression of interest on Sept 14, which will close on Oct 23. “The advantage of OneTen Paya Lebar is that the underlying asset is a freehold industrial property,” says Savills’ Tan. “The property can ride the rejuvenation of Paya Lebar, the proximity to Paya Lebar Central commercial hub, and the post-2030 redevelopment of the Paya Lebar Airbase into a sustainable new town.”

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