US fund manager in exclusive due diligence for Bugis Junction Towers

Singapore

A SALE may be in the works for Bugis Junction Towers.

The Business Times understands that Angelo Gordon, a US-headquartered global alternative investment manager, is doing exclusive due diligence with a view to buy the 15-storey office block above the Bugis MRT Station.

Market watchers expect the price to be around S$2,200 per square foot of net lettable area (NLA), which would work out to an absolute price of about S$547 million.

The property, owned by Keppel Reit, was valued at S$515 million at the end of last year, reflecting S$2,069 psf on NLA of 248,853 sq ft.

Talk in the market is that the price would translate to a net yield in the low 3 per cent range based on income from the existing leases. Bugis Junction Towers is currently running at full occupancy. Enterprise Singapore, the anchor tenant, has a long lease. Other tenants include InterContinental Hotels Group and coworking space provider UCommune.

Bugis Junction Towers is part of a mixed development that also includes a mall owned by CapitaLand Mall Trust and the InterContinental Singapore, owned by Frasers Hospitality Trust.

The entire complex is on a site with a balance leasehold tenure of 70 years.

Word on the street is that Cushman & Wakefield is handling the Bugis Junction Towers deal.

Last year, the property consulting group had also been commissioned by Keppel Reit to conduct an informal expression of interest exercise to find a buyer for the asset, as previously reported by BT.

That exercise, which closed in September last year, drew a few offers - all below the owner's expectation of around S$2,300 psf.

Angelo Gordon, the party to which Keppel Reit is understood to have granted exclusive due diligence for Bugis Junction Towers, also owns a stack of 22 units in the Draycott Eight condo. It bought them for over S$100 million in 2017 from a fund managed by Alpha Investment Partners, which is part of Keppel Capital, the asset management arm of the Keppel Group.

A sale of Bugis Junction Towers would be the latest in a series of big-ticket office deals.

At the nearby Duo project, developer M+S Pte Ltd last week announced the sale of the office and retail space in the mixed development for S$1.575 billion (or S$2,570 psf on NLA) to Allianz Real Estate and real estate private equity firm Gaw Capital Partners. The Duo project is a site with a leasehold tenure of 99 years from July 1, 2011, leaving about 91 years balance lease. JLL brokered the sale.

Also announced last week was Commerz Real's divestment of 71 Robinson Road from its open-ended property fund hausInvest for S$655 million to Sun Venture group, which is backed by Taiwanese and Singaporean investors.

The price works out to S$2,756 psf on NLA of 237,644 sq ft, and about 3.6 per cent net yield based on the building's current income.

The office block, at the corner of Robinson Road and McCallum Street, is on a site with about 73.5 years of balance lease. The transaction was brokered by CBRE and JLL.

Based on data from Savills Singapore, office transactions in Singapore of S$10 million and above in the private sector so far this year have amounted to S$5.14 billion, shy of the S$5.24 billion of office transactions clocked in for the whole of last year. In 2017, the figure stood at nearly S$7.5 billion.

Besides the two major deals last week, earlier office transactions this year include Chevron House, 7 & 9 Tampines Grande and a 50 per cent interest in Frasers Tower.

According to CBRE executive director of capital markets and residential services Galven Tan, net office yields have compressed to about 3 per cent to 3.5 per cent - from the 3.5-3.75 per cent a couple of years ago. Office prices have run up faster than rental growth as the market participants are aware of the relatively tight supply of new good-quality space, he added.

"However, the thing to note is that yields are very building specific - depending on the lease-expiry profile of the property, in addition to the usual factors such as building quality and location.

"When it comes to stitching office transactions in Singapore, the principal challenges are that deal sizes are typically quite large, and yields low, compared with other markets.

"That said, the Singapore office market offers relative stability, and transparency with regard to planning parameters and supply/demand."