Market will recover by end-2011, says developer of hotel, housing project

Dubai’s property market will recover by the end of 2011 as mortgages become easier to obtain and more people move to the city, according to the developer of a US$4 billion hotel and residential project.

‘Banks can’t stay away for long,’ Santhosh Joseph, 45, chief executive officer of Dubai Pearl, said in an interview. ‘They have to lend and, historically, most of this region’s lending goes into property.’

Dubai, the second-biggest sheikhdom in the United Arab Emirates, experienced the world’s worst property slump during the global recession, with selling prices falling by more than 50 per cent and project cancellations exceeding US$300 billion. To sustain itself, Dubai Pearl is relying on US$1.5 billion paid for apartments in advance and another US$500 million that has been committed by Al Fahim Group, Mr Joseph said.

‘We’re not expecting to sell substantially in 2010 and 2011. We are a zero-debt company but we may look into leveraging at a later date.’

Mr Joseph has a 20 per cent stake in Dubai Pearl while the rest is owned by a group of investors led by Al Fahim Group, one of Abu Dhabi’s wealthiest families.

Dubai Pearl is building four 73-storey towers connected by a single roof less than a mile from the emirate’s palm-tree shaped man-made islands. The project, which has the same name as the company, will have 20 million square foot of hotel and residential space.

MGM Grand, SkyLofts, Bellagio, and Baccarat are among the six hotels that will have 1,400 rooms. The main structure will be surrounded by an artificial beach and low-rise buildings containing malls and theatres. The project is scheduled for completion in 2013.

The property crisis prompted Dubai Pearl to review the project and add entertainment and health components to the design, Mr Joseph said. The company also renegotiated terms with buyers, such as longer payment schedules, to reduce the chance of defaults.

‘In 2010 and until the second half of 2011, I’m not expecting the international markets to be liquid or mortgages to be widely available,’ he said. ‘Real-estate cycles are usually three years peak-to-peak and the best locations tend to bounce quickly.’

Dubai Pearl is at the centre of a newly developed part of the city, surrounded by populated areas such as Palm Jumeirah, Dubai Media City and Dubai Internet City where international media and technology companies are based. The densely populated Dubai Marina is also nearby.

The project has the ‘best location with a captive clientele in a six-mile radius,’ Mr Joseph said. ‘Our area lacks communities where residents can walk from end to end.’

The company is selling residential space at 2,250 dirhams (S$854) a square foot, while furnished and serviced Baccarat-branded apartments are selling starting at US$1,000 a square foot. The prices have been slashed by about 30 per cent, he said.

Source: Business Times, 18 Mar 2010

Team arranged US$20b of debt and equity transactions in last 10 years

Jones Lang LaSalle Inc (JLL), the second-biggest publicly traded commercial property broker, has hired an investment banking team from larger rival CB Richard Ellis Group Inc (CBRE), as it prepares for US real estate sales to rebound.

Thomas J Melody, 48; Michael J Melody, 47; and Thomas O Fish, 47, started their new jobs this week, Chicago-based Jones Lang said in a statement. The Melody brothers worked at Houston- based LJ Melody & Co when it was sold to CB Richard Ellis in 1996 and went to work for the acquiring company. Mr Fish joined them later that year.

The men, who Jones Lang said arranged US$20 billion of debt and equity transactions in the last 10 years, will lead their new employer’s US real estate investment banking unit. The division handles commercial property sales and arranges financing for transactions. In 2009, it generated about a third as much revenue as a similar unit at CB Richard Ellis.

‘Our desire is to be a market-leading business,’ Jay Koster, president of Jones Lang’s Americas capital markets group, said in an interview before the announcement. ‘That means taking on all of our competitors in that space.’

The new hires will be based in Houston, Jones Lang said.

‘Mike and Tom Melody and Tom Fish are fine producers,’ said Robert McGrath, a spokesman for Los Angeles-based CB Richard Ellis. ‘We wish them the best.’

The decision to leave was ‘very tough’, Mr Fish said in a telephone interview. ‘CBRE’s debt and equity-finance platform is an established one,’ he said. ‘Tom, Mike and I wanted to be in a position of helping to grow a platform.’

Jones Lang LaSalle generated US$203 million in revenue last year from selling real estate and arranging financing for transactions, the smallest share from any of its units, according to a February company presentation.

About US$38 million came from the US, where commercial property values have fallen 41 per cent since peaking in October 2007.

‘Our capital markets business is not a contributor at this point in time,’ Jones Lang’s CFO Lauralee Martin said of the division in a Feb 3 conference call.

CB Richard Ellis reported US$569.8 million in revenue from global capital markets in 2009, according to a February investor presentation.

The number combines revenue from property sales and the commercial mortgage brokerage businesses, Mr McGrath said.

Jones Lang’s new hires have known each other for 30 years. They grew up in Houston, attended college together at the University of Texas at Austin and each belonged to the Kappa Alpha fraternity, said Paige Steers, a Jones Lang spokeswoman.

Shares of Jones Lang LaSalle have fallen 44 per cent from their July 2007 peak to close at US$68.82 in New York Stock Exchange composite trading on Tuesday. CB Richard Ellis slid 65 per cent from its July 2007 peak, closing on Tuesday at US$14.42.

Source: Business Times, 18 Mar 2010

Change in investor confidence has cut redemptions queues in several key funds

The property arm of UBS Global Asset Management is eyeing an investment market comeback in 2010 following a sea-change in investor confidence that has cut redemptions queues in several key funds.

Roberto Varandas, head of European real estate business development at the UBS unit, said that property is back in vogue with many clients who have quit plans to take back their cash, citing renewed faith in the prospects of the beleaguered asset class.

‘Some funds are attracting big cash inflows without there being a roaring bull market for real estate just yet because the differential between yields and the risk-free rate is so large,’ Mr Varandas told Reuters in an interview at the MIPIM trade fair.

‘We have seen queues for redemptions diminish by 200-300 million euros (S$382-573 million) each quarter across all our open-ended funds, starting from Q3 2009, mainly due to rescissions – and that represents a dramatic turnaround in less than a year.’

Mr Varandas added that he expected UBS’s core continental European fund, its US$7 billion US open- ended fund and some of its German open-ended funds to be among those scouting for new acquisitions in 2010.

‘It would be hard to quantify the amount of firepower we have as it’s different from region to region,’ he said.

‘If the US fund operates at a 5 per cent liquidity, that is almost US$400 million,’ he said, adding that the continental European fund would be open to strike two or three deals in the 30-50 million euros bracket.

UBS is under no illusions about the challenges that it faces to invest new capital in today’s stock- starved European real estate market, where equity is flooding back to core strategy funds, and banks – some of the biggest de factor owners of property – are seemingly under little pressure to liquidate.

‘I think it’s fair to say that it is as hard to deploy capital in core real estate today as it was at the very height of the boom,’ Mr Varandas said, warning of a return to the typical bull-market problem faced by reputable fund managers who are forced to close funds for new investment because they cannot deploy capital at the same rate as clients invest it.

‘The new problem is managing the expectations of investors who recognise real estate yields are so much more compelling than cash or bonds but who don’t understand it takes time to put their cash to work,’ he said.

While traditional markets stumble over price discovery and fickle access to debt, UBS has managed to keep its finger on the pulse of emerging property markets such as China, India and Brazil, where rapid urbanisation is creating a potentially lucrative imbalance between property demand and supply.

‘People need to consider these emerging markets as evolving into mature markets maybe two decades or even one decade out. They represent the future,’ Mr Varandas said, flagging a particular interest in Chinese residential property.

‘A slowdown in capital to those regions has delayed our projects but we are looking closely at how we can bring these back on course in 2010,’ he said.

Its low appetite for leverage during the boom times has helped UBS to withstand troubles in some weak markets that other more indebted peers have been forced to flee at punitive prices.

Mr Varandas said that UBS had no plans to reduce its exposure to real estate in the infamous PIIGS – Portugal, Italy, Ireland Greece and Spain – economies, where he expected opportunities to abound in the near future.

‘We need to be diversified. We cannot just turn off the switch and say no more Portugal, no more Spain – that’s not what investors expect us to do. And diversification means you take the good with the bad,’ he added.

Source: Business Times, 18 Mar 2010

But for 21% of investors Asia is the target, says survey

European property investors are focusing on opportunities in their region in 2010, with many seeing the rising UK, German and French markets as the most attractive, a CB Richard Ellis survey said yesterday.

Of 271 investors polled, 60 per cent said they were planning to invest in Europe, 21 per cent are looking to Asia, and 12 per cent in North America, CBRE said in the report, released at the MIPIM property trade fair at Cannes, France.

‘This European preference is probably not surprising given that the vast majority of respondents are based in, and predominantly invest within, the region,’ Nick Axford, head of EMEA research and consulting at CBRE, said.

‘However, it is noteworthy that 40 per cent see the best opportunities lying elsewhere, with Asia a clear target for many,’ he said.

Of those investing within Europe, 31 per cent pick the UK as the most attractive market, with France and Germany equally preferred by 18 per cent. Another 17 per cent were looking further east, towards Central and Eastern Europe, the survey showed.

‘As yet, investors see fewer opportunities in the distressed Spanish market, perhaps believing that the window for entering this market will remain open for longer here than elsewhere,’ CBRE said.

Offices are the most attractive target to 39 per cent of investors, while 34 per cent preferred retail properties, in particular shopping centres.

The survey showed more than half of the respondents believed the risk of a ‘double dip’ recession or a weaker-than-expected recovery in occupier demand posed the biggest threats to the property market, CBRE said.

Fears of forced sales by banks and debtors – a key investor concern last year – appears to have ebbed however, it said.

‘Respondents are right not to be too concerned . . . the support . . . from governments and asset protection schemes will help to extend the period over which problem debt can be tackled,’ Philip Cropper, CBRE executive director of real estate finance, said.

Source: Business Times, 18 Mar 2010

Investors should buy real estate assets and funds that invest in property in the UK and Asia because a potential rebound in prices and economic growth will counter inflation risks, Aberdeen Asset Management Plc said.

While UK properties offer ‘attractive’ yield, real estate in Asia is supported by the strength of the region’s economic growth, Michael Turner, head of global strategy and asset allocation at Aberdeen, said on Tuesday.

He recommended buying into real-estate investment trusts and funds that hold property, without giving specific names.

‘People should allocate more money than they do now in real estate as a hedge against inflation,’ Mr Turner said. ‘Real estate, whether or not there’s inflation as a result of macro policy, is attractive in its own way.’

China, India and Australia have tightened monetary policy to curb inflation as the global economy recovers from the worst recession since World War II. Interest rates in advanced economies can remain accommodative for an ‘extended period’, while policy in ‘a number of emerging economies’ may have to be tightened ‘relatively soon’ because of signs of accelerating inflation or credit booms, the International Monetary Fund said in a Jan 19 staff note.

Minutes from the Australian central bank’s March meeting, released on Tuesday, said that policymakers raised borrowing costs this month for the fourth time in five meetings because the risk of faster economic growth stoking inflation outweighed the potential for renewed financial market turmoil.

In the US, where the housing market is still flat, the Federal Reserve on Tuesday repeated its pledge to keep its main interest rate near zero for an ‘extended period’.

It is a different story in Asia and Britain. UK house prices rose in February at the fastest pace in more than seven years, research group Acadametrics Ltd said on March 12. Nine of 10 Britons say that buying a home is a ’sensible investment’ even after the nation’s worst housing slump in three decades, a survey by YouGov Plc published on March 2 showed.

In Asia, property prices have risen as economic growth in the region outpaces the rest of the world’s. Hong Kong’s home prices surged almost 30 per cent last year, Centaline Property Agency Ltd said this month. Australian home prices jumped 13.6 per cent in 2009.

The World Bank forecast in January that the global economy would expand 2.7 per cent this year. China’s economy, the world’s third biggest, will top last year’s 8.7 per cent growth rate in 2010, the nation’s central bank estimated this month.

Singapore’s gross domestic product is forecast by the government to grow between 3 per cent and 5 per cent this year.

Source: Business Times, 18 Mar 2010

HK$280m paid for Peak property on Severn Road

A Hong Kong listed company said yesterday it will buy a luxury house for a near-record price in the city, a month after the government introduced measures to cool the city’s property market.

Sino-tech International Holdings, an electronics components maker, said it has agreed to buy the 4,650 square foot property on the Peak for HK$280 million (S$50.42 million), or HK60,215 per square foot, as an investment.

The per-square-foot price is among the highest paid for a property in the southern Chinese city, after a duplex was sold by Henderson Land Development in October for an Asian record of HK$71,280 per square foot.

The Peak property is one of the 22 houses in the luxurious Severn 8 development on Severn Road, which was named by online analysis group The Wealth Bulletin as one of the 10 most expensive streets in the world last year.

Also on the list were Chemin de Saint-Hospice in the South of France, Fifth Avenue in New York, and Kensington Palace Gardens in London.

The near-record price was reached despite a series of measures the government introduced in February to cool the white-hot property market, such as increasing residential land supply and stamp duty for luxury flats.

John Tsang, the city’s financial secretary, said the government was worried that the property frenzy, supported by strong demand from rich mainland buyers and a big inflow of funds, would create a bubble and affect the stability of the financial system.

Prices of some luxury flats returned to the peaks of the 1997 property boom in January, Mr Tsang said.

Stimulus measures by governments around the world have boosted liquidity, which has lead to large fund inflows into Asia.

China has also seen soaring property prices, with values rising at their fastest pace in 17 months in December after Beijing encouraged tax breaks, loans and lower downpayment requirements to boost the sector during the slump.

Source: Business Times, 18 Mar 2010

Despite the global downturn last year, the Penang property market has not recorded any significant drop in prices and is expected to improve this year in line with the economic recovery.

Henry Butcher Malaysia (Seberang Perai) Sdn Bhd’s senior manager Fook Tone Huat said that development land, especially in Seberang Perai, was still in good demand, particularly near town areas.

‘Although many projects were deferred last year, we are confident that the worst is over and public confidence has begun to come back in the property market,’ he said at a media briefing on the property market in Seberang Perai here yesterday.

The Seberang Perai area is expect to record a 10 per cent increase in appreciation rate due to its high population density compared to neighbouring states like Kedah and Perak, Mr Fook said.

He said that development land in Seberang Perai was two times larger than land in Penang island. ‘The lack of land for development has caused properties in Penang island to be about 40 per cent higher than those in Seberang Perai,’ he said.

According to Mr Fook, now is the time for the public to purchase properties as the base lending rate (BLR) is still below 6 per cent. ‘As long as the BLR is below 6 per cent, it would not affect the number of purchasers in the property market,’ he said.

On the outlook for 2010, Mr Fook said that the residential sector will still be the main player in the property market in Seberang Perai. As for commercial properties, he said Bandar Sunway in Seberang Jaya will continue to be the prime hotspot and there is potential for new shop/office development in the area.

Source: Business Times, 18 Mar 2010

Most of the funds to be used for asset enhancement and debt refinancing

CAPITACOMMERCIAL Trust (CCT) is planning to raise at least $225 million and up to $250 million through a five-year convertible bond issue to be placed with institutional and accredited investors.

The office Reit, which is partly owned by CapitaLand, plans to use most of the funds (75-90 per cent) for ‘asset enhancement and refinancing of existing indebtedness’, CCT said in an SGX announcement late last night. The remaining funds will be used for general working capital.

Credit Suisse has been appointed the sole bookrunner and lead manager for the issue which is expected to close on or around April 21.

The maximum number of new units to be issued upon conversion will not exceed 10 per cent of the 2.81 billion units in issue as at Dec 31, 2009. In line with Rule 887(1)(a) of SGX-ST’s listing manual, no unitholders’ approval is required in this case.

At its full-year results briefing, CCT said that it had no plans to raise equity citing the lack of acquisition plans.

CapitaLand’s shares tanked on the announcement of its $1.1 billion convertible bond issue in August on concerns over share dilution.

In early January, the trust wrote down the value of its investment properties by $327.6 million and unveiled plans to revamp its portfolio. It said that it would sell Robinson Point to a private fund for $203.3 million and look at redeveloping Starhub Centre at Cuppage Road from an office property to a mainly residential one.

It also reported a downward revaluation of its properties from $6.03 billion in May 2009 to $5.7 billion at end-2009. The writedown follows an earlier one in May, where the value of CCT’s portfolio was reduced from $6.71 billion in December 2008.

CCT owns 11 commercial properties in Singapore, including some older properties in the Central Business District (CBD). It is believed that the funds raised could be used to redevelop Starhub Centre as well as possibly resurrect plans to redevelop the Market Street Car Park into an office development which were shelved last year due to the uncertain market outlook.

In May 2009, CCT announced plans to raise $828.3 million in a rights issue as it looked to cut down its gearing.

Prime office rents in the CBD have been falling and an upcoming glut of office supply is seen contributing to further rental erosion with analysts seeing older buildings as being particularly vulnerable. For example, in January, property firm Savills said that it expected a 20-25 per cent fall in Grade A office rents in Singapore this year.

The Grade A office supply here will rise by 47 per cent between 2010 and 2012, with 7.7 million square feet of space being added, Savills added.

CCT shares were suspended yesterday pending the announcement and remained suspended pending pricing of the bonds. On Tuesday, the stock lost one cent to close at $1.13.

Source: Business Times, 18 Mar 2010

Funding of up to $1m for any project with cutting-edge innovations

JTC Corporation is looking for ‘cutting-edge’ ideas from the private and public sectors and academic institutions on how to intensify land use and create new industrial space.Ins

And it will provide funding of up to $1 million for each project proposal. The industrial landlord has decided to open up its innovation ‘dream fund’ – created to fund innovative projects internally – to external partners too.

‘Innovation is a high priority for JTC and we recognise that we can increase our capacity for innovation if we pro-actively reach out to external partners,’ said JTC chief executive Manohar Khiatani. ‘With this initiative, we hope to seek new inspiration to complement our own ideas and boost industry research in optimising, intensifying and creating new industrial space for the advancement of the economy.’

The maximum funding amount for each project proposal is capped at $1 million, and the duration at one year. Projects should not have started before the funding is approved.

Also, foreign organisations will have to partner a local organisation or have a local arm to participate. Applicants will know if their proposals have been successful by the third quarter of this year.

The overall theme for the inaugural proposal exercise is on the intensification of industrial land use – in line with what was recommended by the Economic Strategies Committee in early February.

The committee’s report said that Singapore has to support the intensification of industrial land use as there are now greater demands on the country’s limited land resources.

The focus for the proposal will be on three main areas: clustering relevant industries for increased synergy; reducing land use for infrastructure, transport networks, buffer zones and other facilities; and mitigating issues relating to high-rise industrial operations such as goods handling, vibration and urban heat.

JTC’s ‘dream fund’ was set up in 2004 to grow new capabilities to sustain Singapore’s competitive industrial edge.

Its innovative projects include Fusionopolis, Biopolis, Seletar Aerospace Park and the recently launched CleanTech Park. Besides these parks, JTC is pursuing other ideas such as new mega-hoist systems and a ’small-footprint high plot ratio’ for standard factories, which could cut costs and save space for businesses.

‘As an infrastructural solutions provider in Singapore, JTC places priority on developing innovative and sustainable infrastructure solutions to meet the evolving needs of businesses,’ JTC said in a statement.

Source: Business Times, 18 Mar 2010

Two en bloc sale sites have come on the market – Culford Gardens at Siglap, with price expectations of $37-40 million, and two adjacent bungalows in Margate Road, which are expected to fetch more than $30 million.

Both sites are freehold.

In the Siglap/Upper East Coast vicinity, Credo Real Estate is handling the collective sale of Culford Gardens, which is on a 44,093 sq ft site. Under Master Plan 2008, the site is zoned for residential development with a 1.4 plot ratio – ratio of maximum potential gross floor area to land area – and a maximum five-storey height.

According to Credo, the total gross floor area allowed is 67, 903 sq ft including the additional 10 per cent balcony allowance. The owners’ $37-40 million price expectation reflects a unit land price of about $545-589 per sq ft of potential gross floor area. No development charge (DC) is payable. Based on this price, a developer can expect to break even at about $950-1000 psf.

Culford Gardens’s tender closes on April 8.

Over in the Katong area, two neighbours are teaming up to sell their bungalows at 6 and 8 Margate Road, which have a combined land area of 24,002 sq ft, through an expression of interest exercise being handled by Cushman & Wakefield.

The property is zoned for high-rise residential development of up to 24 storeys. It has a plot ratio of 2.1, which allows for a maximum gross floor area of 50,404 sq ft. Between 55 to 60 units of an average size of 850 sq ft can be built on the combined plot of land, says Cushman. The property is expected to fetch more than $30 million or $866 per sq ft per plot ratio, including an estimated $13.6 million DC.

This reflects a minimum breakeven cost of about $1,250 psf for a new project. The expression of interest exercise closes on April 20.

Source: Business Times, 18 Mar 2010