Window of opportunity opens for collective sale of strata mixed-use developments
By Timothy Tay
/ EdgeProp Singapore |
The collective sale launch of International Plaza is one of the most-watched enbloc deals pending in the market. (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - The recent collective sale launch of International Plaza at $2.7 billion has given hope to other owners of ageing strata-titled, mixed-use complexes to explore a similar exit.
Making a sixth attempt at a collective sale is Peace Centre/Peace Mansion, which was launched for sale at $650 million early this month. JLL is the sole marketing agent for the mixed-use development. The 99-year leasehold site has a land rate of $1,443 psf per plot ratio (psf ppr) after factoring in the lease top-up premium.
Peace Centre (left) and Peace Mansion launched their collective sale tender on Sept 7 and are the latest commercial developments to enter the en bloc market. (Picture: Samuel Isaac Chua/The Edge Singapore)
Pick up in en bloc momentum
The collective sale momentum picked up after Maxwell House was sold for $276.8 million in May. The 99-year leasehold development was launched for tender in April this year with a reserve price of $268 million. Cushman & Wakefield was the marketing agent.
A joint venture consisting of SingHaiyi Group, Chip Eng Seng Corp, and Chuan Investments successfully tendered for the en bloc acquisition. It is the first time these companies are working together on a joint project. (See potential condos with en bloc calculator)
The collective sale momentum picked up after Maxwell House was sold for $276.8 million in May 2021. (Picture: Samuel Isaac Chua/The Edge Singapore)
In the neighbourhood of Little India is Verdun House, which was launched for collective sale on Aug 26. The freehold property has a guide price of $55 million, which is $1,790 psf per plot ratio based on the potential gross floor area of 30,727 sq ft. The freehold development is a four-storey commercial block with 16 strata-titled units. Delasa is the marketing agent for the collective sale of Verdun House. (Find Singapore commercial properties with our commercial directory)
According to Karamjit Singh, CEO of Delasa, there are three factors supporting the positive en bloc sentiment in the commercial property market.
Firstly, “there has been a big push by the URA to revitalise parts of the CBD and commercial developments in the area have been given incentives to redevelop as long as a significant portion of the new development is residential or hospitality component”, says Singh.
A top-down push to revitalise parts of the CBD, a residential supply crunch, and ample investment liquidity support the enbloc sentiment, says Karamjit Singh, CEO of Delasa. (Picture: EdgeProp Singapore)
Also, the overall shortage of residential land supply in Singapore is encouraging some developers to look towards alternative land sources to replenish their land banks, he says.
Thirdly, Singapore’s overall stability and attractiveness as an investment hub has attracted many investment firms and family offices to establish here. “This capital inflow is bound to rub off to the commercial sectors and we have seen asset values in Singapore increase over the past few years,” says Singh.
Valuation and apportionment challenges
“Commercial en bloc and mixed-use en bloc typically present unique challenges. The main challenge is devising an equitable formula of distributing the proceeds among the various owners. The problem tends to be more pronounced when there is mixed-use with a retail component,” says Singh.
This is because these retail businesses usually are the most heavily disrupted as the resultant relocation affects their business and customer goodwill, he says.
Jeremy Lake, managing director of investment sales and capital markets, Savills Singapore, agrees with this sentiment.
The owners of older strata commercial developments are also more open to explore and support a collective sale because they and the buildings are getting older, says Jeremy Lake, managing director of investment sales and capital markets, Savills Singapore. (Picture: EdgeProp Singapore)
“Typically, we can’t rely on the strata area and the share value, and we would have to look at a valuation-based mechanism. This requires a valuer to undertake a valuation of all the units,” says Lake.
He adds that the process generally works well, but inevitably some owners may be unhappy with the valuation. In some rare cases, owners may not accept the valuation report and this can make the apportionment stage very difficult.
Declining leases and ageing properties
The owners of older strata commercial developments are also more open to explore and support a collective sale because they and the buildings are getting older. This is especially the case for 99-year leasehold strata-buildings, says Lake.
“A number of [99-year] mixed-use strata-titled projects have short leases left, such as International Plaza and Maxwell House. For these owners, they feel that the only way to maximise the value of their property is to pursue a collective sale rather than sell individually,” he says.
Lake adds that the negative impact of the ongoing Covid-19 pandemic should not be overlooked, particularly on strata-titled retail properties. “In many cases, owners of strata-titled malls have seen vacancy rates go up and rental rates come off,” he notes. “They are therefore more motivated to explore a collective sale.”
This is one reason why the owners of Sim Lim Tower are in the process of launching the collective sale tender of their freehold development. It is the first time the owners of the mixed-use commercial development with shops and offices, are attempting a collective sale.
The owners of Sim Lim Tower are shortlisting a marketing agent to advise on their collective sale process which could be launched before 1Q2023. (Picture: Samuel Isaac Chua/The Edge Singapore)
According to Bafna Rajesh, CSC chairman of Sim Lim Tower, consumers rarely shop for wholesale electronic parts and gadgets from the shops there. “When the shops at Sim Lim Tower opened in 1980, the market for wholesale electronic parts was still strong, but the rise of e-commerce in the past few years has completely changed consumption habits,” says Rajesh.
Most of the strata owners at Sim Lim Tower are using their units for their own business, while a few are renting out theirs.
If the collective sale is successful, some owners intend to use the proceeds towards their retirement, while others are planning to reinvest in something else, Rajesh reckons.
Retail footfall at Sim Lim Tower has fallen over the years as the market for wholesale electronics goods shifts online. The strata-titled development needs to be refreshed to keep up with consumer needs, says Bafna Rajesh, CSC chairman of Sim Lim Tower. (Picture: EdgeProp Singapore)
He adds that the CSC is in the process of appointing a marketing agent and has already shortlisted about five consultancies. This will be followed by the valuation and apportionment stage, which could take four to six months. “We hope that by March 2023, the CSC will be able to obtain the necessary 80% consent based on the valuation and apportionment to launch the collective sale tender,” he says.
More en bloc launches and sales
According to Savills’ Lake, the collective sale market is expected to continue to be active over the next few months. “There are many potential collective sale launches in the pipeline and many CSCs are at different stages of the process,” he says.
The pace of sites being sold is expected to increase substantially over the coming three to six months as long as developers remain hungry for land. However, this momentum could be derailed if owners’ price expectations are beyond what developers are willing to pay.
“These windows of collective sale activity tend to be relatively brief, so it is important that owners catch the wave in time, get themselves ready quickly and enter the market so as not to miss the boat,” says Lake.
Check out the latest listings near International Plaza, Peace Centre/Mansion, Maxwell House, Verdun House
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