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CapitaLand-Norges joint venture out of Asia Square deal - for now

BlackRock said to be in talks with ARA-led group to buy Tower 1 in what could be Singapore's biggest office transaction
Thursday, November 5, 2015 - 05:50
Towerasia.jpg
Asia Square Tower 1.

Singapore

NEGOTIATIONS are off "for now" between BlackRock and a consortium that includes CapitaLand and Norges Bank Investment Management (NBIM) on the sale of Asia Square Tower 1 in what could be the biggest office transaction in Singapore.

NBIM manages Norway's sovereign wealth fund, while BlackRock is the world's largest asset manager.

Word in the market is that BlackRock has been talking to another party that was shortlisted following the close of an expression of interest exercise for the sale of the tower in August. The potential buyer is believed to be a consortium being stitched together by ARA Asset Management that includes South Korean SWF Korea Investment Corporation (KIC) and the California Public Employees' Retirement System (Calpers). Attempts to reach ARA for a comment were unsuccessful by press time.

BlackRock may also pursue discussions with other bidders that have expressed interest in the asset - including Singapore's Keppel Land; a tie-up between Abu Dhabi Investment Authority and Lend Lease; and China's Ping An Insurance (Group).

Last month, CapitaLand confirmed that together with other parties, it was in negotiations with the vendor of Asia Square Tower 1 for a potential deal.

In an announcement on the Singapore Exchange on Wednesday morning, CapitaLand said the parties have "for now ceased negotiations regarding the potential acquisition.

"CapitaLand will continue to explore opportunities which fit in the group's strategy and the terms of which allow the group to generate the required returns."

Bloomberg had earlier reported that a consortium of Norway's sovereign wealth fund and CapitaLand had been chosen as the preferred bidder.

BT understands that BlackRock had shortlisted two parties following the EOI - with the CapitaLand-NBIM consortium as its top choice, followed by the ARA-arranged group that includes KIC and Calpers.

The Asia Square Tower deal is seen as potentially the biggest office deal in Singapore.

When news broke in June that the 43-storey tower was on the market, the price tag was at least S$4 billion or around S$3,200 per square foot on net lettable area. Subsequent reports put the price at around S$3.5 billion or S$2,800 psf; even at this price, observers reckon that the deal would have included some income support given weakening office rents and the vacancy in the tower - especially when Google moves to Mapletree Business City (II) in the Pasir Panjang area some time next year.

The BlackRock fund that owns Asia Square Tower 1 is said to expire in mid-2017. "Whatever income guarantee made by the vendor will be only till then. Once the fund life ends, no one would be held accountable," a property agent suggested to BT.

Bloomberg said in a report on Wednesday that CapitaLand pulled out of negotiations after disagreeing over terms of the deal, according to a person familiar with the matter, who asked not to be identified because the process is private.

BT understands CapitaLand was attempting to raise a new fund to buy the Asia Square property. It was to have put in some of its own money and secured NBIM as a cornerstone investor; at the same time CapitaLand was also looking for other investors in the fund although this may be challenging in the current climate.

Still, suggested a market watcher, the wording of CapitaLand's statement on Wednesday suggests the group may not be completely out of the picture for Asia Square; it could be just that negotiations have halted for now.

When contacted on the reasons for this outcome, a CapitaLand spokeswoman said the group is "unable to comment any further" beyond its statement.

BlackRock Real Estate's head of Asia-Pacific John Saunders said in a statement issued on Wednesday that negotiations with potential buyers of the Asia Square asset continue.

"While we are not in a position to comment on the details, we are pleased to have received significant global interest in this high-quality asset and are currently working to achieve the best outcome for our investors."

He added: "Asia Square is a trophy grade-A office building in Singapore, often considered as one of Asia's best such developments . . ."

Besides Google, other tenants in Tower 1 of the development include Citi and Julius Baer.

Savills Singapore expects the average monthly rental value for its AAA office basket to ease 11.8 per cent for the whole of this year to S$11.94 per square foot after rising 24.9 per cent last year. Rents are expected to decline further next year, marked by the start of a big wave of office completions. Demand growth, on the other hand, is expected to remain lacklustre.

"Tenants are cognisant they have the upper hand in negotiations," said Savills Singapore research head Alan Cheong. "CBD Grade A office dynamics are undergoing an epochal change with major space users such as global banks reducing their real estate footprint and tech companies moving to business parks in the suburbs. This comes at a time when Singapore office supply is expected to balloon in the coming years," he added.

Based on Savills' estimates, the net absorption of CBD Grade A offices on the island was only about 240,400 sq ft in Q3 2015, less than half of the 499,800 sq ft achieved in the preceding quarter. Global economic uncertainties have continued to weaken sentiment in the local business community. "This has made companies hesitant to relocate or expand as cost saving and revenue generation have become priorities," Savills said.