(SINGAPORE) Some US$281 billion of capital will be available to invest in global real estate in 2011, said DTZ Research – a 22 per cent increase from the firm’s previous estimate in December 2009.

DTZ’s estimate climbed as more capital is set to flow into the property markets in the US and Asia-Pacific.

The greatest increase in available capital is forecast to be focused on the US – a significant 54 per cent increase over DTZ’s December 2009 estimate to US$97 billion now.

And a further US$71 billion is targeting the Asia-Pacific region, an increase of 29 per cent.

While the majority of available capital continues to target Europe (US$112 billion), this is unchanged from the December 2009 estimate.

‘The current attractiveness of the US is in stark contrast to the situation a year ago,’ said Nigel Almond, associate director of forecasting & strategy at DTZ and author of the report. ‘Most US markets were cold, offering expected returns below risk adjusted required returns. This opportunity remains largely unexploited to date, since transaction volumes in the US have not yet seen the levels witnessed in Europe and Asia-Pacific.’

In the Asia-Pacific region, the emerging markets of China and India and the more mature market of Australia are the main targets for single country funds, said David Green-Morgan, head of DTZ Asia Pacific Research.

He added: ‘We expect the large increase in available capital targeting Asia-Pacific to have a positive impact on transaction volumes during 2011 with increasing cross border activity.’

The DTZ report also highlighted the return of listed and private property companies to the market.

Publicly listed companies now account 17 per cent of available capital, compared to 4 per cent in December 2009. And capital from private property companies and individuals now accounts for 14 per cent of available capital, rising from 3 per cent previously.

Third-party managed funds, by contrast, have decreased their share from 77 per cent to 49 per cent.

DTZ Research’s data also showed that diversification by both geography and property type continues to be a priority for investors.

In line with the previous analysis, the majority of capital is due to be invested in multiple countries. However, this share of capital has decreased from 70 per cent to 56 per cent, highlighting a growing focus on single country investments. Of those investing in single countries, there has been a significant increase in funds targeting the US.

Separately, Aviva Investors – the global asset management business of Aviva – said yesterday that the Asia-Pacific has become one of the most attractive international real estate markets for long-term investors.

‘Asian economies look to be much better placed for recovery than their Western counterparts, making real estate investments in the region particularly compelling,’ said Ian Hally, Aviva Investors’ chief executive of Asia Pacific Real Estate.

‘Asia has been less reliant on debt over the past decade at a government, corporate and personal level, which should lead to stronger investor and occupier demand. Considering the strong fundamentals, experienced and long-term real-estate investors have an excellent opportunity to achieve strong risk-adjusted returns within the region.’

Source: Business Times, 14 Oct 2010

Inaccurate valuations caused property fund crisis: fund manager
(FRANKFURT) More appraisers qualified to survey specialised segments of the real estate market are needed to prevent future bubbles that could trigger a double-dip in the economy from forming, a fund manager told Reuters on Tuesday.

‘In an industry where everything is becoming increasingly specialised, it is simply not possible for a single surveyor to make an accurate valuation judgement of an office block in New York, a factory in Sydney and a family home in Frankfurt,’ Ingo-Hans Holz said. ‘It’s like going to the dentist with a knee problem.’

Mr Holz manages the first property fund for German corporate real estate – the BEOS Corporate Real Estate Fund Germany 1 – and is the director of BEOS, a German construction management association which has been developing property since 1997.

The fund, which started up earlier in September, has raised 200 million euros (S$356 million) from institutional investors, an amount Mr Holz plans to double. He sees half of the fund being held in equity.

About 10 major open- ended real estate funds in Germany closed at the peak of the global financial crisis two years ago, because they were afraid of investors pulling money out and being left with no liquidity.

‘These fund closures shook investor confidence, but it is important to remember the nature of our investor clientele and therefore the relative associated risk,’ Mr Holz said.

Funds at KanAm Group, Aberdeen Immobilien and Morgan Stanley – which have been frozen for two years and are battling to retain investors when they reopen in October – chiefly attracted investors with short-term interests.

The investor base of the BEOS Corporate Real Estate Fund, however, is made up mainly of savings banks with sufficient liquidity to stay on for the long term, Mr Holz said.

The fund, which is not yet measured against a benchmark index, has bought buildings in Berlin, Hamburg, Mainz, Karlsruhe, Frankfurt, Cologne and Stuttgart.

Mr Holz said he favours properties in ‘B-locations’, with high development potential but without top-end price tags.

‘We are particularly interested in properties in the so-called ‘Mittelstand segment’ – the middle class and mid-cap sector,’ Mr Holz said, adding they can be used as offices, laboratories or other facilities.

According to him, this reduces the chance of the building remaining vacant for a sustained period of time. — Reuters

Source: Business Times, 30 Sep 2010

N THE last decade, an increasing number of Singaporeans have turned to real estate overseas as they become more affluent and globalised.

Here’s a look at two neighbouring residential property markets which have traditionally captured Singaporeans’ keen interest, according to a July report by realestate group Debenham Tie Leung (DTZ) .

KUALA LUMPUR

The residential sector continued to experience a recovery in the first half of this year, as evidenced by good take-up in the recent launches of several luxurious residential properties in Kuala Lumpur.

However, the overall average price of high-end condominiums in Kuala Lumpur decreased by 3 per cent quarter-on-quarter, to RM552 (S$238) per sq ft in the second quarter of this year. Average rents fell marginally to RM3.53 per sq ft per month after being stagnant in the last two quarters at RM3.56 per sq ft per month due to the high level of new supply.

Substantial future supply of about 12,000 prime condominium units is pending completion between this year and 2012. About 630 of these units, in developments such as The Troika and Hampshire Place, are in the KLCC area and are expected to be ready by the end of this year.

Demand for new landed residences remains overwhelming in well-sought-after locations. For example, the Sunway Damansara unveiled its Sunway Rymba Hills and 50 per cent of the 80 three storey bungalow villas (priced between RM3.04 million and RM3.9 million) were booked within two weeks of the launch of registration.

JAKARTA

The estimated future supply of condominiums is 3,650 units, coming from projects such as Casa Grande, The Wave, and Verde Apartment. All are currently under construction, with the earliest completion expected to be at the end of this year.

By the end of the first half of this year, average prices for middle-grade two-bedroom condominiums in the secondary market in Jakarta CBD stood at 12.5 million rupiah (S$1,863) per sq m. For three-bedroom units, the average asking prices in middlegrade and upper-grade condominiums were 11.4 million rupiah and 17.4 million rupiah per sq m, respectively.

Meanwhile, the average monthly rental for apartments in the central business district was US$14.1 per sq m for two-bedroom units and US$13.53 per sq m for three-bedroom units.

Overall demand for rental accommodation is expected to remain soft.

Source: my paper, 13 Sep 2010

IF YOU’RE a private-property owner, have no intention of owning an HDB flat, are sufficiently cash-rich and still interested in purchasing property, you might want to consider the real-estate market overseas.

Be it for investment, or as a holiday or retirement home, an overseas property can be highly attractive, especially in markets where properties in general are cheaper than those in Singapore.

But property experts caution that buyers face a high risk. Reports of Singaporeans who bought properties overseas and ended up with poorly developed apartments or were swindled by developers who absconded are not uncommon.

Buyers thus have to be very careful in looking out for their own interests, especially since the Singapore Government does not provide any protection for the purchase of properties overseas.

A key to reducing this risk is extensive research. Potential buyers should familiarise themselves with the property rules and regulations of the country they want to purchase the property in.

Some countries prohibit foreigners from owning houses and apartments in certain zones or buying certain types of properties.

City planning, zoning requirements as well as building codes and restrictions may be important as well, especially if you intend to tear down and rebuild a landed property.

Additionally, potential buyers will need to look into the country’s property-tax laws and other legal issues, and check if they are entitled to any protection by the local government as home owners.

The easiest means to find out such information may be through government websites. Otherwise, advice can be sought from real-estate groups in the country of choice or a lawyer there.

That said, buyers need to make sure they choose trustworthy, reputable and qualified companies with a proven track record. This reduces the chances of being scammed, and will help ensure that the purchase process and subsequent management of the property will be well- handled.

It is also a good idea to get quotes of typical management fees in the area to gauge the value for money one is getting.

Furthermore, the buyer must be comfortable with the individual representing the selected company who is to manage his property as he will have to deal with him directly.

It is crucial that the individual not only has sufficient expertise, but also speaks both the local language and English fluently to adeptly explain any problems that may arise in the future.

When purchasing for investment, take special note of the surrounding amenities.

Assess the place based on both the rental potential of the area in general and the specific unit in particular, and choose a location which will likely see capital appreciation in the future. A property that is spacious and has a good view of some sort will likely help with this.

Potential buyers might also consider choosing a development that comes with a guaranteed rental agreement and yield for a few years.

It is essential, however, that buyers check that these contracts are backed by some form of asset by the managing company, and clarify the details, including the net amount of money which will be received and how often it will be paid out.

Also, before signing the purchase agreement, check that the property identified in the contract is the correct one as mistakes – whether accidental or otherwise – have been known to occur.

Another critical component is currency exchange-rate stability. Typically, markets in which the local currency is unstable are not recommended, as this can have a huge impact on many fronts.

Loan repayments and any amount spent on renovation and maintenance are affected.

More important is that the owner may lose a high percentage of any capital gain on the purchase if the property is sold at a time when the exchange rate is unfavourable. A clear but flexible exit strategy is therefore necessary.

That said, property experts here believe that the new housing rules will have limited impact on Singaporean demand for property overseas.

“The recent property rules are targeted more at ‘double timers’ – those who own both an HDB flat and private property,” said Dr Chua Yang Liang, head of research for South-east Asia at Jones Lang La- Salle.

“One would expect a higher probability of such buyers active in the Malaysian market, given the lower capital required. Hence, this recent policy is more likely to impact such buyers in the Malaysian market.”

He added, however, that the impact on buyers in the European market is much less as the profile of such investors are mostly of the higher-net-worth category.

Ms Teo Li Kim, associate director of consultancy and research for Knight Frank, similarly pointed out that the majority of individuals who have the means to purchase properties overseas are not those who have no choice but to buy HDB flats.

“They may play it cautious for a while, but they ultimately need to park their spare cash somewhere and real estate overseas will still seem attractive,” she said.

Source: my paper, 13 Sep 2010

Buying land parcels overseas is risky, so investors must do proper due diligence

It sounds like a sure-fire winner – buy cheap land overseas and cash in big time once developers come calling – but big losses can also come with the territory, as many Singaporeans can attest.

The uncertainty and high risks of such investments seem obvious, yet many investors here come a cropper when their investments in overseas land turn sour.

Singapore’s consumer watchdog has received 11 complaints this year about firms selling such land and 14 last year. There were only four each in 2008 and 2007.

Landbanking, as the process is called, involves firms buying large plots and subdividing them into smaller parcels, making it easier to sell to investors as they can be priced at affordable levels.

Some plots in Britain can be picked up for as little as $10,000 each.

Landbanking firms tell investors they can buy undeveloped plots, usually rural land overseas, and sell later for a profit. Investors are often told the land is on the outskirts of a city where urban development is likely.

When development plans are drawn up, investors can then sell their plots to developers who are willing to pay higher prices to secure the land.

To make the deal attractive, some landbanking firms promise regular payouts over a fixed period or a buy-back guarantee. Some offer the flexibility of allowing investors to switch their plots to ones that have already received development approval so they can enjoy faster gains.

It looks a winner, yet the pitfalls are plenty.

Recently, the case of 200 investors made headlines when their investments in plots in Britain headed south.

They had bought plots at various times near places like Swindon and Gatwick since 2006. Each plot cost $15,000.

In all, these purchases, which were done through local firm Land International (Far East), amounted to an estimated $6 million.

Initially, the investors received quarterly payouts of 8 per cent a year from 2007. But these dried up when the parent firm of Land International (Far East), Land International, was closed by the British government in 2008 following an insolvency probe.

Investors later learnt that the plots had been zoned as ‘green belt’ or protected land, on which no development is allowed.

In Singapore earlier this month, 40 disgruntled investors turned up at Speakers’ Corner in Hong Lim Park to share their woes on their investments which included landbanking.

Many had invested in Singapore-based investment firm Profitable Group and have yet to see any returns. An unhappy Mr H. Yeo, 35, had invested £13,000 (S$27,000) in 2008 in land in the Philippines through Profitable Group. He claimed he was due to get his returns last year but they have not materialised.

Since late last year, the firm has been on the Monetary Authority of Singapore (MAS) Investor Alert list. The list includes entities that may be conducting activities regulated by MAS without authorisation.

The executive director of the Consumers’ Association of Singapore (Case), Mr Seah Seng Choon, warned that buying overseas land is a ‘very high risk’ activity and consumers should be extremely careful. Simply, if you cannot stomach such high risks, do not get involved.

‘No one can be sure of getting back their money in such a venture. It is a very high risk, particularly when the business offering such investment is unknown and has no track records,’ he said.

Case has been fielding complaints about landbanking for the past four years but it does not have the authority to deal with them.

Despite the bad publicity, some people have profited from their landbanking investments, usually after a long wait.

For instance, Indonesian investor Ludwina Ismail, 52, made total gains of 14 per cent after buying a half acre (0.2ha) of Canadian land in Calgary from Canadian-based landbanking firm Walton International, in early 2005.

She managed to exit after a two-year wait, but that was because the land she bought for C$33,000 (S$44,000) was a resale deal from an earlier investor who had bought it five years ago.

———————————————-
As with all investments, landbanking investors must do proper due diligence. Here are some considerations.

1 Risks

These are high as the land may not appreciate in value for a long time. There are no guarantees on how soon developers will buy over the land. For instance, investor Molly Tan, 40, was given an estimate of five years by the landbanking firm but she ended up waiting 10 years before making her exit with some gains. So be prepared to stay invested for a number of years.

The long gestation period means the money invested may be stuck for several years while generating no returns, which makes the investment very illiquid. Investors are also subject to exchange rate movements as the plots are on foreign land and bought with foreign currency.

Bear in mind there is a tax impact as well, as profits are subject to withholding tax of about 25 per cent on a tiered basis. Of course, there is always a risk that the land is never developed. And reselling the land, if possible, may result in losses.

In the event of company closures, consumers may be left with nothing. This was what happened in 2006 when Britain landbanking firm Land Heritage (UK) closed after an investigation. Its 700 investors were not refunded.

A key risk is that the firms soliciting landbanking investments are not regulated here so they do not have to adhere to strict investment rules such as those laid down by the MAS, said Case’s Mr Seah.

Besides the lack of regulation on such investments, the absence of a track record is another big hurdle, said Mr Chris Firth, chief executive of wealth management firm dollarDex.

‘Retail investors may find it hard to get independent inform-ation, and even if they do, they may not have the expertise to properly assess the opportunity and particularly the risks. If things go wrong, they may not be able to call on regulators,’ added Mr Firth.

2 Background checks on the land

Before embarking on such a venture, Case urges consumers to get as much information on the land on offer as possible, such as its condition, leasehold, restriction of use and so on.

‘Ask the embassy about the conditions and requirements of foreigners owning the land in their country. Also, check up the relevant laws that apply to ownership of land and find out the taxes or levies that apply to land ownership,’ suggested Case’s Mr Seah.

Another tip is to find out if the offer for that plot of land is a credible one.

You should also assess the likelihood of the land value rising.

dollarDex’s Mr Firth advised investors to find out the mark-up on the offered plots.

For example, a piece of British land without planning permission could fetch as little as £15,000. The same plot with planning permission could be worth £150,000, or sometimes even more.

Small investors may end up paying a price somewhere between these two, yet have a small – or unknown – chance of seeing planning permission granted, he said.

‘Potentially, that means a big loss if permission is not granted. Moreover, very small plots of land could be very hard to sell in isolation if collective sales efforts peter out.’

Sometimes, land that has good potential for planning permission may already have a vendor’s lien on it.

When a landbanking firm buys the plot, it could come with a condition that the firm must pay some money to the seller if the land is on-sold within a specific number of years.

‘Such a lien could wipe out any potential profit for the small investor, depending on the mark-up,’ added Mr Firth.

3 Background checks on the firm

Do not let a professional-looking website or a formal-sounding name sway you from authenticating the firm.

If it is foreign or has a foreign parent, ensure it is valid by checking with the embassy to ensure the scheme is not a scam.

Find out the paid-up capital and date of existence of the landbanking firm. There should be a proper contractual agreement that spells out its obligations. One important consideration is the title deeds.

You should also determine if the firm is regulated in the country that it is operating in.

Imagine the worst-case scenario and find out what recourse options are available if you want to exit later. If that happens, what are the applicable laws in the event of disputes?

4 Resolution process

If a dispute arises, the process can be costly.

It may be necessary to engage foreign lawyers to deal with the matter and in some countries, it may take years before a case is resolved.

You should research the credibility of the country’s legal processes and the integrity of people involved in the legal process.

Furthermore, as these are overseas land plots, consumers must factor in travelling and accommodation costs to deal with any dispute.

Source: Sunday Times, 27 Jun 2010

I REFER to last Friday’s report, ’200 lose $6m in British land deals’, which revealed that 200 persons have, at various times since 2006, purchased plots of land in rural places like Swindon and Gatwick in Britain through Land International (Far East), a Singapore company which is the subsidiary of parent Land International, shut down by the British government in 2008.

These 200 persons had been promised high returns with regular payouts for three years.

Singapore investors may wish to know that Britain’s Land Registry published a guide in 2008 on ‘land banking schemes’ to alert the public on schemes often touted as offering huge returns on investment. Apparently, land sold in such schemes is usually in areas protected from development by planning law – that is, land in the ‘green belt’ or agricultural land where no development is ever likely to be permitted.

According to the guide, known in short as Public21, such land is first acquired at a low price and divided into smaller plots. The plots are then offered for sale (even online) to the public on the premise that when planning permission is secured in the future for the site for housing, the plots will be more valuable. Potential investors may be misled about the prospects of obtaining planning permission or redevelopment and this in turn may lead them into thinking that they will have the opportunity to sell the plots at even greater profit to developers in the future.

The guide mentions that those operating land banking schemes often claim that they have well-known banks, other lending institutions and established developers as their partners in the schemes when this may not be the case. In some extreme cases, forged Land Registry letters have been produced to suggest that there is official Land Registry planning approval.

Singapore investors keen on land in Britain should at least peruse such a guide, and make inquiries with the Land Registry or a credible international property firm based in Singapore with overseas networks in those countries of interest to them. Singapore Accredited Estate Agencies agrees with the Consumers Association of Singapore that due diligence and background checks of both the locally registered land banking company and its parent or counterpart in the country of origin must be stringent before investors part with their monies.

Dr Tan Tee Khoon
Chief Executive Officer
Singapore Accredited Estate Agencies

Source: Straits Times, 17 May 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

ASIAN buyers of luxury real estate may be raising their profiles in New York and London by picking up luxury homes at eye-popping prices, but they haven’t been neglecting the property markets closer to home either.

While property prices in more mature Asian markets such as Singapore, Hong Kong and Thailand are still some way from their historical highs – courtesy of the beating they took due to global financial crisis – they have been moving up in tandem with stock markets, and attracting interest from individuals in the upper end of the high net-worth range.

‘The very affluent go where they choose to,’ says William E Heinecke, chief executive of Thai conglomerate The Minor Group, which among its diverse interests is a key player in the hospitality and lifestyle industries, with hotels, resorts and residential properties throughout the region. ‘A lot of people come to Thailand for the weather,’ he says. ‘As a result, if you can afford it, you have homes where you spend time.’

Minor launched its first high-end residential property project in 1995 at the Four Seasons Residences in Chiang Mai. Its growing portfolio of luxury developments includes The Estates Samui in Koh Samui, and the high-rise St Regis Residences in Bangkok is slated for completion next year. Prices for its various properties range between US$2 million and US$6 million.

Mr Heinecke says that Indian and Chinese nationals, who may have domicile in key major cities around the world, have emerged as strong players in the mega-luxury bracket, but traditional buyers from other Asian countries as well as Europeans and Americans are also active in the region. ‘As long as people have money and lifestyle is important, they are going to continue to buy in great locations,’ he says.

He adds that a significant new trend involves branded luxury residences which are located within a hotel property and can be part of the rental pool, commanding rates of several thousand dollars a night. ‘When owners visit their properties once or twice a year, it makes sense to have them professionally managed,’ says Mr Heinecke.

Mr Heinecke says that the quality at the luxe end of the market continues to improve, and there is also no shortage of high-end properties and people who are willing to buy them.

‘The bar continues to go up, and competition raises the bar,’ he says.

The luxury investment bar continues to go up as well in Singapore, where the recent launch of hotel and property developer YTL Corporation’s Kasara – The Lake collection at Sentosa Cove has yielded a highly positive result. The boutique development’s 13 villas have all been sold, at prices ranging from S$14 million to over S$25 million.

Of the buyers, seven were foreigners from Asia while six were locals. In general, there are several types of high-end buyers, says Kemmy Tan, director of international real estate at YTL Singapore.

Asian buyers are typically from Hongkong, Indonesia, Malaysia and China, with an increasing number of expatriate Indians as well. ‘American buyers may hold US passports but may not be living in the US, or they may be in places like Hongkong and have some interest in Asia,’ says Ms Tan. At the peak of the market, there were also investors from places such as Ireland. ‘When they invest, they invest with a longer-term view.’

Despite – or even because of – its restrictions on foreign ownership, Singapore has long been a significant target for investors. ‘They are property investors who own homes in key cities,’ she says. ‘If values are expensive in their home countries and Asia looks attractive, they will come here – these are definitely people with multiple homes in different cities and resorts.’

Buyers of properties in resort destinations are different from those who buy in Sentosa Cove, says Ms Tan. ‘They buy in Phuket and Bali for the resort lifestyle – those who buy here want the best of both worlds. They might have business interests and they want the comfort of city living. For wealthy investors, especially during the financial crisis, they are looking for good buys in ’safe’ locations.’

The proportion of foreign investors versus locals has increased tremendously in the past few years, she adds. And the good news is there is still some upside.

‘Real estate has always been a good hedge against inflation,’ says Ms Tan. ‘For luxury property, we are at least 10 to 15 per cent below the peak, so there’s room to move up.’

Elsewhere in Asia, there have been recent reports of a US$45 million riverfront mansion on the market in Shanghai’s financial district – an indication of the real estate boom in China. If those kinds of prices look a little scary, then there are always less heated up markets like Taiwan, where analysts report that foreign investors make up less than one per cent of the property market. Where opportunities go, of course, the money will always follow.

Source: Business Times, 13 Mar 2010

Much of this activity in the US will be spurred by sale of distressed properties

The recession-ravaged US lodging industry will offer opportunities next year for would-be hotel investors interested in picking up plum properties suffering from falling revenue and high debt.

As much as US$3.5 billion worth of hotels are expected to trade hands in the United States next year, compared to just US$2 billion in 2009, according to projections from hotel investment firm Jones Lang LaSalle Hotels.

Much of this activity will be spurred by the sale of distressed hotels struggling to fund looming debt payments as travel demand remains weak.

‘When these loans come due, I think that’s when you’re going to see an awful lot of product in the market,’ said Daniel Lesser, a senior managing director of CB Richard Ellis.

Nearly 1,300 properties in the US are classified as distressed, representing a value of more than US$32 billion, according to Real Capital Analytics. That figure ticks up daily as more and more hotels buckle under the economic downturn, which has sapped travel demand.

‘At some point, it’s simple math,’ said Dan Fasulo, head of research at Real Capital. ‘If your income from the property (is cut) by half, there’s not enough money to go around to pay the bank, to pay your staff, to pay your suppliers.’

Hotel deals in the US have been few and far between in 2009 as buyers and sellers haggled over the worth of these properties. ‘There’s been a huge disconnect between bid and ask,’ Mr Lesser noted, adding that valuations are now not as far apart as they were 18 months ago. Many take this as a sign that transactions will pick up again in 2010.

The daily resetting of room rates means hotels are highly sensitive to fluctuations in the economy.

Daniel Vosotas, chief executive of Trans Inn Management, said his company had to revamp its hotels’ budgets at least four times this year to cope with volatile economic conditions.

‘We lease every 24 hours,’ Mr Vosotas said. ‘Our product is more perishable than fruit.’

This sensitivity, coupled with looming debt maturities coming due over the next three years, may bode badly for hotels scrambling to meet payments, but could spell opportunity for funds looking to buy.

‘In 2010, there will be a pick-up in transactions, not just in hotels, but in commercial real estate in general,’ said David Weymer, a managing principal at Noble Investment Group.

Noble has about US$200 million available in a fund dedicated to buying hotels.

Mr Weymer said the Atlanta-based firm has not closed on an acquisition in about 20 months, but he expects it will buy a property ‘fairly soon’.

‘It’s like being at the junior high dance waiting to see who goes on the dance floor first,’ Mr Weymer said. ‘In 2010, they’re going to start to see more couples get on the dance floor.’

This week, Stifel Nicolaus analyst Rod Petrik wrote that more than US$38 billion in opportunity funds stand at the sidelines looking to buy distressed assets. Of that sum, US$7.5 billion could be earmarked for buying hotels, he wrote.

Host Hotels & Resorts Inc said in October it was looking to buy hotels that might fit into its stable of top-tier properties. Pebblebrook Hotel Trust raised about US$350 million in an IPO this month to acquire distressed hotels.

But other funds are struggling to raise the cash to fund hotel acquisitions, suggesting there are mixed feelings about the pace and number of choice properties that could come up for sale in 2010.

Last week, another company vying to go public, Chesapeake Lodging Trust Corp, had to postpone its initial public offering indefinitely.

‘A lot of people are little bit hesitant to commit into a fund without knowing how long it’s going to take before you start acquiring assets,’ said Paul Novak, president of Bedrock Partners. Mr Novak is trying to put together a fund of US$200 million to US$250 million to buy hotels. He projects there will be some pick-up in hotel sales by spring.

Source: Business Times, 22 Dec 2009

Developer sniffing for opportunities in China and London

HARD pressed to find land in Singapore, developer Ho Bee Investment again plans to beat a path overseas to places such as China and London to grow.

‘We are still sniffing for opportunities, but our next phase of growth will definitely not just be in Singapore but outside of Singapore,’ Ho Bee chairman and CEO Chua Thian Poh told BT in a recent interview.

Under a joint-venture agreement Ho Bee signed with high-end China residential developer Yanlord last month, the two Singapore-listed developers will join forces for a feasibility study on a project in China.

Ho Bee and Yanlord are also eyeing large sites in China’s second and third-tier cities to build mid and upmarket condos for locals.

Additionally, Ho Bee is scouting for residential development opportunities in Central London. ‘London was badly hurt during the financial turmoil, and the pound has also come down substantially,’ said Mr Chua. ‘Maybe it’s time for us to re-look at London again.’

Ho Bee is no stranger to London, having developed and sold Parliament View, comprising 190 apartments, along the River Thames facing Big Ben and the Houses of Parliament. The project, undertaken jointly with SsangYong Cement – now known as EnGro Corp – was completed in 2002. Ho Bee has retained four apartments in the development.

In China, too, Ho Bee has been involved in projects in Shanghai through joint ventures with Hong Kong partners, and with its new partner Yanlord hopes to secure several large land parcels to do phased development on each site.

‘Hopefully we’ll be be able to do something nice for the first phase and showcase our capabilities. This will help build up value for the remaining phases,’ said Ho Bee executive director Ong Chong Hua.

Through their alliance, Ho Bee and Yanlord will leverage on each other’s expertise and track record. ‘Yanlord is a high-end and reputable developer in China. Ho Bee has also made a name for itself, especially on Sentosa Cove. And I think projects by Singapore developers still command a price premium in China,’ Mr Ong said.

‘In China, you can get a big chunk of land and develop it over, say, a 10-year period. So things are much easier to plan. In Singapore, getting land is quite ad hoc.’

Mr Chua said securing land here through collective sales has become more difficult because of the more rigorous rules governing such sales to protect minority owners.

‘Looking for our raw material is the big challenge in Singapore,’ he said. ‘Every site that comes up (at state tenders) now attracts 12-15 tenderers. The pricing is also very competitive.’

‘Hopefully, when the government restarts the confirmed list next year, it will stabilise the market.’

A more positive note for Ho Bee in Singapore is that it has not exhausted its local land bank. Even after this week’s preview of the 205-unit Trilight condo on Newton Road, Ho Bee has three other Singapore condos that can generate a total of over 600 units. These include the 248-unit Parvis at Holland Hill, which is a joint venture with MCL Land, and two condos at Sentosa Cove – the 151-unit Seascape and a project of about 300 units on the Pinnacle Collection site.

Parvis may be previewed later this month or next, while the two Sentosa projects – to be developed jointly with Malaysia’s IOI Group – are slated for release next year to leverage on the opening of Sentosa’s integrated resort.

Ho Bee has been the predominant residential developer at Sentosa Cove, an upscale waterfront housing district emerging on 117ha of mostly reclaimed land on the east coast of Sentosa island. It clinched eight plots there, five of which it has completed developing. The other three are the two joint-venture sites with IOI and another plot on which Ho Bee is building Turquoise condo, which is about half-sold.

‘Most of our projects are close to nature – whether it’s a hill, nature reserve, river or the sea,’ said Mr Chua, who started Ho Bee in 1987 as a small developer focusing on industrial property. ‘In the 1990s, we became a decent-sized developer when we developed the Southaven I and II condos in Upper Bukit Timah at the foot of Bukit Timah hill,’ the 61-year-old said.

Even before the Singapore property market peaked in 1996, Ho Bee had turned its attention to London. Initially it bought several floors of apartments off-plan from London builders and later bought apartment blocks which it subsequently sold as the market went up.

‘When we understood the market better, we developed this trophy building opposite the Houses of Parliament,’ said Mr Chua, referring to the Parliament View project.

Things panned out well for Ho Bee as it managed to ride the jump in London property prices as well as the appreciation of the pound – in stark contrast to the lean times for Singapore’s property market during the Asian crisis.

‘Then around 2001-2002, we thought it was time to come back to Singapore,’ Mr Chua said. The company developed several projects such as Rio Vista condo at Hougang beside the Serangoon River, jointly with MCL, and Amaninda in Thomson Road, before it turned its attention to clinching sites at Sentosa Cove when these went up for sale from late 2003.

The rest, as they say, is history.

Source: Business Times, 10 Oct 2009