En bloc contagion spreads to commercial, mixed-use properties

Flood of residential deals re-energises Goldhill Centre and Katong Shopping Centre owners to have another go at collective sale

OCT 24, 2017


THE residential en bloc contagion has spread to the other property sectors, with more commercial and mixed-use developments joining the collective sales rush.

The spillover has revived the interest of owners at Goldhill Centre in Novena and Katong Shopping Centre in Mountbatten Road - both projects have formed collective sales committees and are targeting to set a reserve price when their extraordinary general meetings are held in November, said marketing agent Cushman & Wakefield.

Over at Bugis Cube, the former North Bridge Commercial Complex in North Bridge Road that was refurbished in 2013, owners are putting up the 119-unit retail mall for sale. It is likely to be sold as an investment property rather than on a redevelopment basis, given that it is already built to the maximum allowable gross floor area.

Market watchers note that collective sales involving commercial properties tend to be more complex and time consuming than those involving residential developments.

For one thing, there are not many such transactions in the market for comparison, said Cushman & Wakefield research director Christine Li. "Different owners also have different opinions on the value of their units. Owners running existing businesses will also be reluctant to relocate if alternative locations are not viable."

JLL regional director of investments Tan Hong Boon noted that another hurdle in collective sales of commercial buildings is in getting the owners to agree to the method of apportionment of sales proceeds. The agreed method will usually involve independent valuation at the outset, not just apportionment by strata area and share value, because the perception of value varies from owner to owner.

In addition, ZACD Group executive director Nicholas Mak said many commercial collective sale attempts also fail because the asking prices are too high.

On the plus side, Ms Li observed that owners of older strata-titled developments, especially those built before 1990, may see a need to catch the current wave as an exit strategy as their rental yields come under pressure due to competition from newer retail malls and office buildings.

Goldhill and Katong

Goldhill Centre's 87 units include three-storey walk-up shops and offices. The last en bloc sale attempt for the site, which consists of freehold and 999-year leasehold units starting from 1970, failed to find a buyer in 2008 when the asking price was S$315 million or S$1,496 psf of potential gross floor area.

Katong Shopping Centre was Singapore's first air-conditioned mall when it opened its doors in 1973. Situated in Mountbatten Road, the 425-unit mall sits on a freehold plot of nearly 87,000 sq ft and houses among others, offices, employment agencies, printing and tailoring services shops, and eateries, many of which have been there for decades.

This marks the third attempt by its owners. In their second try with a reserve price of S$630 million or a land price of S$2,248 per square foot per plot ratio (psf ppr), they could not find a buyer willing to match the reserve price by the time its collective sales agreement expired in April this year so it reappointed Cushman & Wakefield.

On why a sale didn't go through, Cushman & Wakefield director of capital markets Christina Sim said there was uncertainty over whether the Urban Redevelopment Authority (URA) would grant certain concessions for the site.

This resulted in a "mismatch of value between what the owners have and what any incoming buyer was willing to give".

The current use of Katong Shopping Centre is fully "commercial" with a baseline gross plot ratio of 3.223; but under Master Plan 2014, the site only has a gross plot ratio of 3.0 and requires 60 per cent of gross floor area to be "residential".

Ms Sim said the URA has agreed to allow the incoming developer to maintain the plot ratio at 3.223. Though the 60 per cent residential component will remain, the URA allows serviced apartments to be built under the residential component.

Smaller developments

Year-to-date, the total 19 collective sales worth S$6.76 billion that have closed consist of 16 pure residential developments, one mixed-use building, a commercial building on a site zoned residential/institution, and an industrial freehold property.

Ms Li said she expects those commercial developments that are about to enter the en bloc market to attract strong interest. "Smaller commercial or mixed-use sites are of optimum size to satiate most small to medium-sized developers' appetites. These bite-sized developments are also rare in government land sales."

Meanwhile, three mixed-use developments have been launched for collective sale. Jalan Besar Plaza and Tai Wah Building off Orchard Road - both sitting on freehold land - are asking for S$390 million and S$81 million respectively. Their asking prices work out to S$2,170 psf ppr and S$2,035 psf ppr respectively. Over in Yio Chu Kang, owners of ICB Shopping Centre are asking for S$65-70 million or S$1,390-1,500 psf.

ZACD's Mr Mak, who also heads the firm's research, said that while there was a noticeable boom for commercial property investment sales between 2005 and H1 2008, many sales involved a single buyer and seller, and usually from one fund or company to another.

There was also a steady volume of commercial investment sales from 2010 to 2013. But since collective sales of commercial buildings account for less than 10 per cent of total commercial investment sales, the boom period for commercial collective sales is less discernible.