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New owners may spend up to $86m on upgrading to lift income from rents

RETAIL space at one of Singapore’s best known shopping malls, Raffles City, could grow by as much as 56 per cent under an ambitious plan by the complex’s new owners.

But it will not come cheap as the upgrading is expected to cost up to $86 million.

CapitaCommercial Trust (CCT) and CapitaMall Trust (CMT), which are both real estate investment trusts (Reits), are embarking on the plans in a bid to boost net property income from rents by up to $25 million a year.

Reits earn their income from rental payments on properties they own.

The two Reits are expected to finalise their acquisition of Raffles City on Sept 1. CCT will own 60 per cent of the integrated retail and office complex, while CMT will own the rest.

They will spend $64 million to $86 million to add between 150,000 and 200,000 sq ft of retail net lettable area.

This would take the retail space at Raffles City to as much as 550,000 sq ft, from the current 356,000 sq ft, said the managers of the two Reits in a statement yesterday.

Raffles City comprises a mall, an office tower, two hotels and a convention centre.

The extra space will come from converting other less profitable parts of Raffles City such as the carpark lots, the hotels’ back-of-house areas and lobbies, convention centre space and electrical plant rooms.

The Reits said two extra floors of retail space could be created at basements two and three. They would relocate the carparks in the basements if necessary in order to maintain the number of lots available.

Basement two would be ideal as this level is connected directly to the proposed Esplanade MRT Station on the Circle Line MRT, set to be ready by 2010, they said. Also, the Reits have plans to build a link from City Hall MRT Station connecting to either basement two or three.

Details of exactly how much space will be taken from which parts of the complex have yet to be finalised.

But an industry source, who declined to be named, speculated that the owners could cut some of the restaurant and convention centre space, or move the hotel lobbies from the potentially profitable ground floor space to the upper floors, he said.

‘Almost all the hotel restaurants are very big. Do they need all the space?’ he said.

Retail space on lower levels tends to attract higher traffic, leading to higher rents.

Indeed, the basement one area of Raffles City has just undergone a revamp, which added an extra 53,000 sq ft of retail space to the previous 30,000 sq ft in that area.

Average rentals at Raffles City Shopping Centre, which attract around 2.2 million visitors a month, are at $13.80 per sq ft (psf) a month as of end-March.

CCT and CMT expect the increased retail space to bring in a rise of between $10 and $15 psf a month in rent, or $18 million to $36 million in gross rental income a year. This would boost Raffles City’s net property income by $12.6 million to $25.2 million a year.

Source : Straits Times - 22 Aug 2006

Deal could prompt more Orchard Road strata commercial buildings to be sold

THE first collective sale of a shopping centre in the Orchard Road area may be in the offing, as majority owners of Ming Arcade on Cuscaden Road are close to agreeing to such a sale.

This will be the first shopping centre in the area to go for collective sale and could blaze the trail for strata commercial buildings in Singapore’s prime shopping belt.

‘Collective sales of ageing strata commercial buildings in the Orchard Road area would speed up their redevelopment, in tandem with efforts underway for the overall remaking of Orchard Road,’ says Jones Lang LaSalle regional director and head of investments Lui Seng Fatt.

The freehold Ming Arcade was completed in the 1980s by the late Ho Kok Cheong, who developed People’s Park Complex.

Jones Lang LaSalle (JLL), which is handling the collective sale of the property through an expression of interest exercise, says it is nearing a deal with owners controlling the requisite 80 per cent of share values for a collective sale.

The expected price is said to be between $55 million and $60 million, which works out to $1,079 to $1,177 per square foot of potential gross floor area. No development charge is payable.

Based on the lower end of the price expectation, the break-even cost for a new office building could be about $1,800 to $1,900 psf, assuming 80 per cent efficiency (ratio of net lettable to gross floor area). Assuming a retail development, the break-even could be higher at around $2,200 to $2,300 psf assuming 70 per cent efficiency and higher construction costs, analysts estimate.

The 12,132 sq ft freehold site is zoned for commercial use with a 4.2 plot ratio (ratio of potential gross floor area to land area) and a maximum height of 20 storeys, according to JLL.

‘This makes it an ideal potential for several redevelopment options such as a prime small office, home office (Soho) development, corporate headquarters building, a high-end boutique, retail or mixed development, all having one of Singapore’s most prestigious addresses,’ JLL says.

Part of the new development could also be used for medical suites, given strong demand for such properties, Mr Lui reckons.

The existing Ming Arcade comprises a seven-storey commercial development and three basement levels, with a total of 88 units adding up to 34,951 sq ft net lettable area. Owners stand to receive about $600,000 per unit on average, which is about 150 per cent more than what the units would fetch if they were sold individually.

According to earlier media reports, Hotel Properties Ltd (HPL) owns five shop units at Ming Arcade. The listed hotel and property group has a sizeable presence in the area. It owns HPL House, Four Seasons Hotel and Hilton Hotel and has a stake in Forum. Earlier this year, HPL bought the Beverly Mai site at Tomlinson Road through a collective sale. It paid $238 million, reflecting $1,184 per sq ft per plot ratio inclusive of an estimated development charge of $16.8 million.

Market watchers reckon other ageing strata commercial properties in the Orchard Road belt that could potentially follow in the footsteps of Ming Arcade and hit the en bloc trail include Far East Plaza, Far East Shopping Centre and Delphi Orchard.

Source : Business Times - 22 Aug 2006

Libeskind may be facing a brick wall with his design for condo at Keppel Bay

Some big-name architects much touted here for upcoming landmark projects may not see their designs built after all.

Pelli Clarke Pelli Architects - the firm founded by Argentine-born Cesar Pelli which designed the Canary Wharf Tower and the Petronas Twin Towers - was earlier named overall concept or form architect for the entire Orchard Turn project, which will have an eight-level retail podium and a residential tower rising over 50 storeys.

But the firm may not end up leaving its mark on the site after all. It appears that Pelli’s design may be dropped in favour of another by Benoy of the UK, which designed the Bluewater mall in Kent and the Bullring in Birmingham.

Benoy’s proposals, which include mounting LCD screens on the mall’s facade, are understood to have wowed Orchard Turn Developments, a joint venture between CapitaLand and Sun Hung Kai Properties which bagged the landmark site in December last year. Another internationally renowned architect, Daniel Libeskind, may also be facing a brick wall with his design for Keppel Group’s condominium at Keppel Bay.

In an interview with the International Herald Tribune in May, Mr Libeskind released artist’s impressions for the project dubbed Emerald Bay, showing swaying towers. A check with Keppel revealed that the project is still a ‘work-in-progress’.

Sources that BT spoke to, however, say that the planning authority, the Urban Redevelopment Authority (URA), was sufficiently impressed with the initial design to extend certain waivers, but that subsequent designs or works-in-progress have not met with the same response.

A spokesman for the URA did say that the architect for the development had shared some preliminary ideas with the authority, ‘but we have not yet received any formal planning application to URA to date’.

Whether these famous architects have had constraints placed on their designs is not clear, but Aamer Taher, a council member of the Singapore Institute of Architects, believes that developers in Singapore do make decisions ‘based on tried and tested formulas’.

One aspect of design in Singapore that is often a point of contention between architects and developers is having to achieve building efficiencies of up to 95 per cent. The result is that common spaces like corridors and lift lobbies are reduced to the minimum while bay windows, which are exempt from development charge calculations, are exploited to the maximum.

‘Architects are reduced to juggling numbers,’ said Mr Aamer.

For important landmark sites, the URA does intervene by way of its Design Advisory Panel (DAP). It is understood that the Emerald Bay does not require a DAP review but that the Orchard Turn site does. URA said: ‘Throughout the DAP evaluation process, the developer is given the opportunity to clarify or propose alternatives to address DAP’s concerns, if any.’

Orchard Turn Developments Pte Ltd initially appointed Benoy as the retail concept/architectural consultant for only the mall component of Orchard Turn while Pelli was to be the form architect responsible for the overall concept of the entire project - both the retail and residential components. However, when contacted by BT, Orchard Turn Developments CEO Soon Su Lin yesterday confirmed that the partners have decided to appoint Benoy as the form architect for the entire project, suggesting it has taken over the role initially performed by Pelli.

‘In developing the retail concept, Benoy has conceived various exciting proposals which included mounting of LCD screens on the facade of the building, significant shop-front visibility opportunities facing Orchard Road, and an outstanding exterior design for the retail component. These proposals are befitting the status of a world-class retail mall which we are committed to create.

‘It was thus deemed most appropriate by the partners to appoint Benoy as the form architect so that the overall retail design concept can be extended to, and seamlessly integrated with, the residential component, ensuring that the entire Orchard Turn development conforms to a common architectural language. This approach establishes the Orchard Turn’s retail component as the centre of gravity along Orchard Road,’ Ms Soon told BT yesterday.

She added that Singapore-based RSP Architects Planners and Engineers remains design architect for the project’s residential component as well as overall submission and project architect for the entire project.

The Orchard Turn mall, which will have four basement levels and four levels above ground, is on track to open by Christmas 2008.

Source : Business Times - 22 Aug 2006

They will spend up to $86m to add 200,000 sq ft of net retail space

MULTI-MILLION-DOLLAR plans are underway to increase the net lettable area at Raffles City, say new owners CapitaMall Trust (CMT) and CapitaCommercial Trust (CCT).

In March, the trusts agreed to pay $2.1 billion for the complex which includes an office tower, hotels and a retail mall. CCT and CMT will now pump in between $64-86 million to create up to 200,000 sq ft in additional net lettable area (NLA).

In statements released yesterday, CCT and CMT said the estimated net increase in rent due to the increased retail NLA is expected to range between $10-15 per sq ft per month. This is expected to translate into a net increase in gross rental income of about $18-36 million per annum. Assuming an operating margin of 70 per cent, the estimated increase in net property income could be between $12.6-25.2 million per annum.

The new owners also expect the ungeared return on investment to be between 20-29 per cent.

Click here for CapitaCommercial Trust’s announcement

About 2.2 million people visit the retail component of Raffles City every month already. CCT and CMT now hope to further strengthen the retail offering at Basement One and create two additional levels of retail space at Basements Two and Three of Raffles City. This will take advantage of an intended link to the proposed Esplanade MRT station on the Circle Line MRT system targeted for 2010. There is also a possibility of constructing a link which could provide direct access from the City Hall MRT station.

The retail component of Raffles City, which takes up about 15 per cent of the complex, is expected to contribute 43 per cent of the net property income. The required additional gross floor area (GFA) can be derived from either hotel commercial GFA, office GFA, or other commercial GFA.

The completion of the Raffles City acquisition is targeted for Sept 1.

The two trusts will sell $866 million of bonds to help fund its purchase. It is understood that HSBC Holdings will be marketing the bonds, which are also backed by Raffles City, in Hong Kong, London and Frankfurt.

Standard & Poor’s rating services said it has assigned a preliminary credit rating of ‘AAA’ to a $670 million portion of the bonds. The other two parts - a $60 million and a $136 million portion - were not rated.

Source : Business Times - 22 Aug 2006

Project would trump Suntec City, Ngee Ann City in size if undertaken

RIVAL developers with land at the Somerset MRT Station could join forces to build a mega-mall on the prime Orchard Road sites.

The project could exceed Suntec City Mall in size and would revolve around the ageing Specialists’ Shopping Centre site, with at least one of the two plots on either side tacked on.

The Straits Times understands that the three developers or owners involved would consider jointly developing their blocks.

OCBC Bank, which owns Specialists’ Shopping Centre, has gone part of the way by confirming that it has agreed to take a 10 per cent stake in one of the adjacent plots - the former Gluttons Square site now held by Far East Organization.

Ownership of the other site, Somerset Central, has not yet been finalised, but Australian property group Lend Lease submitted the highest bid in a state tender that closed on Wednesday. It said that if its hefty $617 million bid is successful, it may consider joining with the owners of the adjacent sites.

‘It makes sense to develop the sites together and it’s doable, but it’s still early stages and we haven’t approached anyone or been approached yet,’ said Mr Ooi Eng Peng, the chief executive of Lend Lease in Asia.

The Straits Times understands that Far East is also open to the possibility of developing its site in tandem with the other two.

If the three sites are amalgamated, the land could host a retail-focused project with about 1.25 million sq ft of gross floor area (GFA). This would include Hotel Phoenix, which connects to Specialists’ Shopping Centre.

This would exceed the size of other major malls like Ngee Ann City, with a GFA of about 1.19 million sq ft, and Suntec City, with one million sq ft of GFA.

Property analysts said a combined project would make better use of the land than having three different malls on adjoining sites.

It would reduce mall competition in the Somerset area and raise the efficiency of the joint project, said OCBC Investment Research analyst Winston Liew.

Efficiency for malls is calculated by dividing the development’s net lettable area by its GFA.

‘Simply, if you have three separate buildings, you need three separate entrances and three exits as well, and that alone would take up a lot of GFA that then becomes unusable,’ Mr Liew said. ‘Also, a larger development allows you greater room to play with the layout configuration, further raising efficiency.’

If the sites are jointly developed, their owners also stand to gain by being able to band together to push up rents, said Knight Frank’s director of research and consultancy, Mr Nicholas Mak.

‘By combining their properties, the three developers would have control over a significant supply of retail space in this area and would thus be able to influence rental in this micro-market,’ he said.

Given the high estimated development costs of the Gluttons Square and Somerset Central sites - close to $700 million and $900 million respectively - the malls that are built will have to charge an average monthly rent of about $17 to $20 per sq ft (psf) to achieve attractive net yields of 6 to 7 per cent, analysts said. This is well above the rents of $6 psf to $17 psf now commanded by Specialists’ Shopping Centre.

News of the record bid for Somerset Central created some market euphoria for several property stocks yesterday.

City Developments, which owns Orchard Hotel and Palais Renaissance, was the star, rising 35 cents to close at $9.55.

CapitaLand, which owns the Orchard Turn site above Orchard MRT Station, was up six cents at $4.56, while Wheelock Properties, owner of Wheelock Place, closed three cents up at $1.60.

Source : Business Times - 19 Aug 2006