(SINGAPORE) Hitachi Tower is now not expected to be put up for sale. The Goldman Sachs funds which own the 999-year leasehold office block along Collyer Quay are instead thought to be looking to refinance the loan on the asset which matures in January next year.

The driver for the change in strategy is the improving outlook for the Singapore office market, say analysts.

‘The thinking now is to get refinancing on the asset, ride the current office upcycle and perhaps sell in one or two years’ time when office values should appreciate,’ said a market watcher.

Goldman Sachs bought Hitachi Tower for $811 million or about $2,900 per square foot of net lettable area (NLA) in early 2008. The purchase was funded mostly by a group of lenders led by Standard Chartered; the loan quantum is believed to be about 70 per cent of the purchase price.

Because the 37-storey building’s value today would be much lower than the purchase price then, the loan quantum for any refinancing deal today is also expected to be lower. Some industry players suggest that Hitachi Tower could be worth between $2,300 psf and $2,400 psf. Goldman Sachs would thus be expected to come up with more equity. Additionally, or alternatively, it could potentially seek co-investors willing to pump in equity or extend other forms of funding such as mezzanine financing.

Over the past few months, Goldman Sachs funds have made two major office divestments in Singapore – Chevron House (behind Hitachi Tower) which was sold last month for $547 million or $2,083 psf of NLA, and DBS Towers One and Two at Shenton Way, which were disposed of for $870.5 million in August.

Hitachi Tower has a total net letable area of about 279,560 sq ft, comprising about 257,800 sq ft of offices on the third to 37th levels and 21,760 sq ft of retail space on the first two levels. The property also has 148 carpark lots in the basement.

Goldman Sachs is working to get the building fully leased. Currently, the occupancy rate is said to be in the low 90s. However, leases on a substantial chunk of space occupied by Amex and Stanchart will expire in the first half of next year.

Finding new tenants for this space, however, is not expected to be a major challenge, given the strong demand for office space in the Raffles Place area, say leasing agents. Leases in the building could be signed for about $7 psf a month on average currently.

Hitachi Tower, which was completed in 1992, was developed by a joint venture between Ong Beng Seng’s privately held Reef Holdings and Japan’s Kowa Real Estate. The duo also developed Chevron House (formerly Caltex House) on an abutting site which today has a remaining lease of about 78 years.

While Hitachi Tower will not be offered for sale now, potential investors keen on the Singapore office market will have other offerings to consider.

These include 1 Finlayson Green. Its owner, a fund managed by Lucrum Capital, acquired the 19-storey freehold office block for $145 million or $1,630 psf of NLA in March.

After factoring in fees and other expenses, the final cost to Lucrum was thought to be about $155-157 million. Lucrum was set up by Indonesian investor Norman Winata.

BT understands that the Lucrum fund recently received offers of over $200 million for 1 Finlayson Green and is mulling whether to sell the building on an en bloc basis or to try and extract higher per square foot prices by selling strata-titled floors individually.

Source: Business Times, 13 Oct 2010

Deals involving the two prominent buildings may shake up the office market

CHEVRON House could be the next big office deal on the cards, say market watchers. This follows the sale of about $1.9 billion worth of office blocks so far this year. Chevron House was bought by Goldman Sachs funds in late 2007 for $730 million or about $2,780 per sq ft of net lettable area and the purchase was mostly funded by a consortium of lenders led by Standard Chartered. That financing facility is understood to be expiring in October and the bankers and Goldman Sachs are said to be weighing their options.

BT understands that potential buyers have been knocking on the doors of Goldman Sachs and the lenders and that property agents could soon be appointed to conduct a sale process such as a tender or expression of interest. ‘The way I look at it, Goldman could have about three options – seek refinancing, bring in a joint venture partner or sell the asset completely,’ suggests an industry observer.

Analysts say that the consortium of banks could have loaned the Goldman funds about 65 per cent of the 2007 purchase price, which would work out to about $1,800 psf of net lettable area. The loan-to-value covenant on the financing facility would have been breached sometime ago following the steep slide in office capital values last year. Interest coverage ratio for Chevron House would also have fallen on lease renewals in the building; average Grade A office rents in Singapore today are about $9 psf a month, or 40 per cent lower than the $15 psf three years ago.

Analysts polled by BT estimate the property could fetch anything from about $1,900 psf to $2,200 psf (or about $500 million to $577 million). The most recent benchmark would be the $2,125 psf that Ho Bee achieved when it sold four office floors at Samsung Hub at Church Street. While Samsung Hub is a much newer asset and stands on a site with superior leasehold tenure (999 years) than Chevron House (which is on a site with 78 years’ remaining lease), the latter boasts a more choice location next to Raffles Place MRT Station.

Goldman Sachs funds also bought Hitachi Tower, behind Chevron House, in early 2008 for $811 million or about $2,900 psf of NLA. Stanchart also heads the consortium of lenders for that purchase; the financing facility is said to end early next year. So a sale of Hitachi Tower could also be on the cards a little later down the road.

Hitachi Tower would be worth more than Chevron House, say analysts, citing its superior land tenure (999 years) and facing (along Collyer Quay). However, one drawback about the asset is the impending departure of American Express – which is said to occupy about 70,000 sq ft – to Marina Bay Financial Centre Tower 2.

Last week, Goldman Sachs funds sold DBS Towers One and Two along Shenton Way for $870.5 million or around $970 psf of NLA, marking the biggest commercial property deal in Singapore since mid-2008. Goldman Sachs reaped a profit from that deal, having paid $690 million for the property in 2005.

Some of the blocks sold this year were ‘pure office’ deals, that is the buyers bought the assets on their existing office use – such as 1 Finlayson Green and Robinson Point – while others such as Chow House and StarHub Centre were probably acquired for their potential for redevelopment into other uses.

Interest from both local and foreign investors in the Singapore office market has been warming on the back of recovering office rentals and the easier climate for fund-raising.

Source: Business Times, 21 Aug 2010