http://www.businesstimes.com.sg/sub/...99940,00.html?
Published October 13, 2010
Goldman to refinance, not sell, Hitachi Tower
By KALPANA RASHIWALA
(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.
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