New Turf City operator got into property accidentally

[SINGAPORE] Cogent Holdings' deputy CEO Benson Tan would tell you the logistics management company stumbled into property management purely by accident - with no experience. It had only built warehouses for its own use.

The two Grandstand buildings - the former Turf City - were extras that came with the deal when it bid for a nearby used car centre with 150 car showrooms that it had hoped would augment its automotive logistics business.

"There was potential to synergise business with the three over thousand vehicles stored and displayed there, to cross-sell the car dealers our logistics services such as towing, vehicle storage and transportation, on top of just leasing them retail space," Mr Tan said.

What it did not expect was that the former mall operator, Singapore Agro Agricultural, whom it had outbid, would complicate the handover by, it alleges, leaving the area in a state of disrepair, carrying out unrequired removal and rectification works such as removing a metal deck floor, and attempting to evict existing sub-tenants and licensees from the mall. The case is now being settled in court.

"The ongoing trial does affect our property management business and take up unnecessary management time, company resources and costs," Mr Tan said.

But it has not been all bleak for Cogent. In its fiscal year 2013, revenue from its property management segment more than doubled to S$22.3 million, thanks to more tenancies secured at The Grandstand.

Not only that, its logistics segment also indirectly benefited - generating a 7 per cent increase in turnover to S$40.6 million - partly because it has successfully converted many tenants at its newly acquired car centre into its vehicle storage customers. About 35 to 40 per cent of its revenue from The Grandstand reportedly comes from the used car business.

It was no mean feat too, to turn a dilapidated building with few tenants into what The Grandstand is today: a sprawling family lifestyle mall with one million square feet of retail shops, diners, service outlets and kids' activities clusters (such as tuition centres), on top of Singapore's biggest pre-owned car mall.

The facelift cost about S$20 million, which included not just beautifying the facade but engaging engineers to overhaul the old and disused escalators and elevators.

Mr Tan admits S$20 million is rather pricey given that the mall's lease from the Singapore Land Authority is for three-plus-three years only, meaning its lease will end in 2018 at the latest. But he insists the substantial investment was necessary.

"Given the dilapidated state (of the mall) we took over from, we had to do something to turn it around. Business would have been much worse had we kept it in its original state."

It was also something the company had to do as "a proper, professional listed company".

"When we undertake a project, we have our reputation to maintain as well," he added.

Yet, it is not passing on its higher capital spending to tenants in the form of higher rents. Rental rates at the Grandstand, which range from $6 to $12 psf, are notably less than at other suburban malls, where rents can go as high as $30 psf. There are also no turnover-based rents.

The mall's competitive rentals are partly due to its relative inaccessibility - a problem that the mall has tried to mitigate by providing shuttle services from various pickup points. The King Albert Park and Sixth Avenue stations on Downtown Line 2, which will be completed by around mid-2016 may also ease the situation.

But Mr Tan said he also believed in building good relationships with his tenants, many of which are start-ups that could easily be crushed under the pressure of high operating costs before they have built up a good customer base.

"I would ensure my tenants' businesses are sustainable and growing before I can consider any rental adjustment," he said.

In this manner, he has managed to amass a good mix of popular tenants, such as gourmet burger joint Omakase Burger, several upmarket restaurant brands such as TungLok and PasarBella, a farmers' market which is popular with residents of the affluent Bukit Timah neighbourhood.

Looking for new tenants was tough, however, said Mr Tan. "We had a plan, but we learnt very fast that it was going to be very challenging for us because we had no track record. We had to share our plans for this mall with potential tenants who were sceptical what this place could offer."

His strategy was also to pick unique brands not commonly available in other malls, so that patrons would visit The Grandstand, especially for that flagship store or outlet.

Now that Cogent has acquired the expertise to manage properties, it will not be stopping at just one mall but will hunt for suitable "neglected or disused" properties which it can lease at lower prices to turn around.

"We are interested to grow our property management business with properties that are not doing very well, a bit run down, that we can revamp to something that yields more income," Mr Tan said.