TE Capital Partners in exclusive due diligence to buy PIL Building
By Cecilia Chow
/ EdgeProp Singapore |
The 17-storey PIL Building was built in 1981 and underwent a major refurbishment from 2008 to 2011 (Photo: Samuel Isaac Chua/EdgeProp Singapore)
SINGAPORE (EDGEPROP) - Word on the street is that Singapore-based real estate investment and asset management firm, TE Capital Partners, is said to have entered an exclusive 60-day due diligence period for the purchase of PIL Building at 140 Cecil Street. (See also: TE Capital acquires portfolio of prime multi-family residential assets in Tokyo)
The 17-storey office building is primarily occupied by Pacific International Lines (PIL), the world’s 23rd largest container shipping company. The company, which had been on the verge of liquidation, was rescued by Temasek Holdings’ wholly-owned investment firm Heliconia Capital Management, which pumped in US$600 million ($806 million) in March last year. Heliconia is now a majority shareholder of PIL.
After the debt restructuring a year ago, the shares held by the family of executive chairman Teo Siong Seng or SS Teo, were whittled down to less than 15%. Teo had taken over the reins from his father in 2018. His father was the former shipping magnate, Teo Woon Tiong, who founded PIL in 1967 and passed away last September at the age of 102.
Last year, PIL Building was put up for sale by expressions of interest (EOI) conducted by Cushman & Wakefield (C&W), which closed on July 17, 2020. The guide price was set at $350 million then.
Built 40 years ago, PIL Building underwent a major refurbishment in 2008 which was completed in 2011. The building sits on three adjoining sites with a total footprint of 1,812 sqm (about 19,504 sq ft). The main plot at the centre is 1,392 sqm in size and has a freehold tenure. It is flanked on either side by two slivers of land, one of 142 sqm and the other of 278 sqm. Both these sites have a 99-year lease starting from May 1977, which means there are 55 years remaining on the lease.
According to sources, Singapore Land Authority (SLA) had given planning approval for the tenure of the two side strips of land to be upgraded to a freehold tenure in March this year. That was said to be the catalyst for a revival of interest in PIL Building from both developers and property funds. When contacted, C&W declined to comment.
Cecil Street last year in the pre-Covid era - with Tong Eng Building on the left and PIL Building further down on the right (Photo: Albert Chua/EdgeProp Singapore)
Redevelopment potential?
To qualify for the CBD Incentive Scheme with increase in plot ratio for redevelopment into a new mixed-use complex with residential and hotel components, the minimum land size on Cecil Street is 2,000 sqm, according to the URA guidelines. However, PIL Building’s site is said to be 188 sqm short of 2,000 sqm, and hence, does not qualify for the CBD Incentive Scheme.
However, this has not dampened interest in the building as it has underutilised plot ratio. Under the 2019 Master Plan for commercial-zoned sites, it has a plot ratio of 11.2. Its existing gross floor area (GFA) is 147,315 sq ft. This means, there is potential for the GFA to be maximised to 218,447 sq ft.
The site still presents an opportunity for developers and investment management firms to undertake asset enhancements through renovating and adding more floors to increase the plot ratio, or to redevelop it into a next-generation commercial building with office space, says a source.
Property consultants remain optimistic about the Grade-A office market in the CBD, despite work-from-home (WFH) still being the norm since last year. According to JLL’s preliminary estimates, average monthly gross effective rents of Grade A CBD office space have risen 1.2% q-o-q to $9.90 psf per month in 2Q2021 from $9.79 psf the previous quarter. After two consecutive quarters of slowing rent correction, it is “a positive sign that office rents have embarked on the road to recovery”, according to JLL in its June 22 report.
In light of the optimism in the office sector, market sources reckon that TE Capital Partners’ interest in PIL Building is as a full commercial building. Whether that is achieved through asset enhancement, raising the number of floors in the building to maximise the existing plot ratio or redevelopment of the building, remains to be seen. When reached, TE Capital declined to comment for this story.
Tong Eng Building is a 999-year leasehold strata-titled office building completed in 1980, where Tong Eng Brother still owns 35% of the strata area (Photo: Tong Eng)
Scoping out the neighbourhood
TE Capital was co-founded by siblings Emilia and Terence Teo, who represent the third generation of the Teo family-controlled Tong Eng Group, The siblings are no strangers to commercial developments in the CBD. In Australia alone, TE Capital has about half a billion worth of assets, primarily premium office buildings in Melbourne’s CBD.
Besides its own portfolio, TE Capital manages the assets of TE2 Development, the development and investment arm of the family office set up by Teo Tong Lim, the group managing director of Tong Eng Group. Incidentally, Teo Tong Lim is the father of Emilia and Terence, the co-founders of TE Capital.
Over the past decade, Tong Eng Group and its various entities have acquired more than $2 billion worth of properties and developed projects worth more than $3 billion in terms of gross development value. And they are no strangers to commercial developments.
Tong Eng Group’s portfolio of commercial developments include Arc 380, the redevelopment of the group’s former Eminent Plaza and Lavender Food Centre, located at the junction of Jalan Besar and Lavender Street. The building was completed in 2018. Another is Centrium Square on Serangoon Road, a redevelopment of the group’s former Serangoon Plaza into a mixed-use development with 231 strata-titled office and retail units for sale. The project was completed in 2020.
Incidentally, Tong Eng Group’s headquarters is located across the street at Tong Eng Building on 101 Cecil Street, where it has been for the past 41 years. Tong Eng Brothers was the developer of the 999-year leasehold, 26-storey, strata-titled office tower that was completed in 1980. Today, Tong Eng Brothers still owns 35% of the strata area at Tong Eng Building.
According to sources, TE Capital has been looking for an opportunity to expand its foothold in the CBD. And the Teos tend to invest in areas they know best. Given their familiarity with Singapore’s CBD and especially Cecil Street, it makes sense for them to be interested in the PIL Building, located across the road from their own headquarters.
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