Published July 10, 2007

Two more office towers on the market

78 Shenton Way, Keck Seng Tower expected to fetch $700m and $233m


OFFICE towers continue to be put on the market for sale, as owners continue to ride on the increase in office capital values and rents. Two of the latest offerings are 78 Shenton Way and Keck Seng Tower.

The Shenton Way block has been put up for sale by expression of interest, and the leasehold property could fetch over $700 million or $1,920 per square foot, based on a total net lettable area (NLA) of 365,000 sq ft.

This area includes some 65,000 sq ft that the owner, a joint venture between Credit Suisse and CLSA funds, has undertaken to build in the form of a 12-storey office block that will stand above 78 Shenton Way's retail podium.

Jones Lang LaSalle is marketing 78 Shenton Way through a closed invitation via an expression of interest exercise, after the owner received approaches from several potential buyers. The site has a remaining lease of about 75 years.

The Credit Suisse-CLSA tie-up purchased 78 Shenton Way in January for $348.5 million - or about $1,160 psf based on the property's existing NLA of about 300,0000 sq ft - from Ferrell Realty, which is fully owned by a property fund in which Lippo is a major investor.

Ferrell bought the property for $151 million or $505 psf of NLA from MCL Land in August 2004.

Keck Seng Tower at Cecil Street is being offered for sale via tender by its owner, Keck Seng Group, with an expected price of at least $233 million, or $2,000 psf based on its NLA of 116,586 sq ft, sources say.

The office property is on a 17,322 sq ft site with a remaining lease of around 72 years.

'The successful buyer can choose to either refurbish or redevelop the development, maximising its allowable gross floor area (GFA) to about 198,000 sq ft,' said Colliers International managing director Dennis Yeo, whose firm is marketing Keck Seng Tower.

The 198,000 sq ft maximum GFA allowed for the property is around 24,500 sq ft higher than Keck Seng Tower's existing GFA.

If Keck Seng Tower is redeveloped, a differential premium (for building this additional GFA) of around $5.3 million is payable to the state. If the new owner seeks to reset the site's lease to 99 years, a further $24 million lease upgrading premium (assuming the building is sold for $233 million) is payable.

Inclusive of these two payments to the state, the all-in unit land price for Keck Seng Tower - based on $233 million - would be around $1,324 psf of potential gross floor area. The break-even cost for a new office project on the site could be about $2,100 psf.

There is potential to build the additional GFA above the car park podium. And on top of this, Keck Seng Tower's current net lettable area of 116,586 sq ft can be boosted by about 10 per cent by making more efficient use of space, such as by converting a floor now used for mechanical and engineering equipment to lettable space.

'With the current robust demand for office space, amidst soaring rents and tight office supply, particularly within the CBD area, investors can expect to reap from this investment in the short- to mid-term period,' Mr Yeo said.

Keck Seng Tower's tender closes on Aug8.