Window of Possibility Opens for Collective Sale of Strata Blended-Use Trends
Other owners of older strata-titled mixed-use buildings can look forward to a similar exit with the recent launch of International Plaza at $2.7Billion.
Upon completion of Canninghill Piers CDL & Capitaland will own the commercial and residential components while 192 units of serviced residence with a hotel license will be under Ascott Reit.
Peace Centre/Peace Mansion is making a sixth attempt to sell a collective. It was listed for $650 million in the early part of this month. JLL is the exclusive marketing agent for this mixed-use development. After adjusting for the lease premium, the 99-year leasehold site’s land rate is $1,443 per plot ratio (psf.ppr).
Pick up in en bloc momentum
After Maxwell House sold in May for $276.8million, the collective sale momentum picked-up. In April, the 99-year leasehold development was put up for sale with a reserve of $268 million. Cushman & Wakefield acted as the marketing agent.
SingHaiyi Group and Chip Eng Seng Corp teamed up to bid for the en bloc acquisition. This is the first time that these companies have worked together on a project.
Verdun House is located in Little India. It was opened for collective sale on August 26. Based on the potential gross floor space of 30,727 square feet, the guide price for this freehold property is $55 million. This is $1,790 per plot. The freehold development consists of a four-storey commercial block and 16 strata-titled units. Delasa acts as the marketing agent for Verdun House’s collective sale.
Karamjit Singh (CEO of Delasa) stated that there are three reasons why the commercial property market is experiencing positive sentiment.
Singh says that Singh firstly, “there has been an enormous push by the URA for parts of the CBD to be revitalized and commercial developments in this area have been given incentives. As long as a significant part of the new development includes residential or hospitality components”, Singh.
He also said that the shortage of residential land in Singapore has prompted some developers to seek out other land sources to replenish their land bank.
Third, Singapore’s stability and attractiveness to investors has attracted many family offices and investment firms to set up here. Singh says that this capital inflow will be reflected in the commercial sector. He also notes that asset values have increased in Singapore over the past few decades.
Valuation and apportionment problems
“Commercial En bloc” and mixed-use En bloc are often faced with unique challenges. It is important to find an equitable way of sharing the proceeds between the owners. Singh says that mixed-use and retail can make the problem more severe.
He explains that these retail businesses are often the most affected by disruptions, as it affects both their business and customers’ goodwill.
Jeremy Lake (Managing Director of Investment Sales and Capital Markets, Savills Singapore) agrees with these sentiments.
“We can’t usually rely on the share value and the strata area, so we would need to consider a valuation-based system. Lake says that this requires a valuer who will perform a valuation of all units.
He says that although the process is generally successful, some owners might not be happy with the valuation. Rarely, owners might not accept the valuation report. This can make it very difficult to apportion the property.
Declining leases, ageing properties
Because they are older, strata commercial development owners are more likely to support a collective sale. Lake says this is particularly true for 99-year leasehold strata buildings.
“A lot of mixed-use strata-titled projects with 99-year leases, such as International Plaza or Maxwell House, have short leases. These owners feel that collective selling is the best way to maximize the property’s value, rather than selling individually,” he said.
Lake also notes that strata-titled retail properties should not ignore the negative effects of the Covid-19 pandemic. He notes that owners of strata-titled malls have often seen their vacancy rates rise and their rental rates fall. They are more motivated to look into a collective sale.
Sim Lim Tower’s owners are currently launching a collective sale tender for their freehold development. This is the first time that the owners of the mixed use commercial development, which includes shops and offices, have attempted a collective sale.
Bafna Rajesh (CSC chairman at Sim Lim Tower), says that consumers don’t shop wholesale electronics parts or gadgets in the shops. Rajesh says that although the market for wholesale electronic parts was strong when the Sim Lim Tower shops opened in 1980, it has changed dramatically over the years.
Sim Lim Tower’s strata owners are using their units to run their businesses, while others are renting them out.
Rajesh believes that if the collective sale succeeds, some owners will use the proceeds to fund their retirement while others will reinvest the funds in other areas.
He also said that the CSC is currently appointing marketing agents and has already selected about five consultants. The valuation and apportionment stages will follow, which could take between four and six months. He says that the CSC hopes to be able to get the required 80% consent by March 2023 based on the valuations and apportionment in order to launch the collective sales tender.
More En-Bolt launches and sales
According to Savills Lake, the market for collective sales will continue to be active in the coming months. He says that there are potential launches of collective sales and that many CSCs are in different stages.
As long as developers are still hungry for land, the pace of site sales is likely to rise significantly over the next three to six months. This momentum could be stifled if the owners’ expectations of what they can get for their land are too high.
Lake says that these windows of collective sales activity are often very brief. Therefore, it is crucial that owners get on the wave quickly, be ready quickly, and enter the market in order to not miss the boat.