Published March 30, 2006
To sign or to wait is the big question
By JEREMY LAKE
THE collective sale market has been very active in the last nine months and newspaper headlines reporting landmark sales like Habitat 2 ($103.8 million), Amber Ville ($183 million) and Eng Lok Mansion ($138 million) are a regular occurrence.
Landmark deal: The recent sale of Eng Lok Mansion for $138 million made the headlines
Owners of properties with collective sale potential are now rushing to get themselves ready to sell and capitalise on the current bullish sentiment. Most of the leading property consultants and lawyers with collective sale experience are very busy at the moment managing and processing these projects.
Despite the near-perfect market conditions for selling a collective project, in many cases it is still taking a long time to secure the required 80 per cent mandate. Legislation is in place requiring the 80 per cent to be achieved within 12 months of the first owner signing the collective sale agreement. This was put in place in May 2004 to stop the exercise from dragging on indefinitely and causing prolonged inconvenience and uncertainty to owners while the en bloc is underway.
Accordingly, the property consultant must secure the 80 per cent within 12 months or else the exercise has to be restarted. It is not uncommon to hear owners ask if the collective sale agreement validity period can be extended but the answer is no, it cannot.
It is interesting to note that owners are currently divided into two different groups, with opposite outlooks. Most recognise that land values have risen substantially and it is a good time to sell. They are mindful of the tidal wave of sites currently coming onto the market and want to ensure that they are not left behind.
Beginning of a recovery
For some of these projects, it is also their second or third attempt and the lessons of the previous unsuccessful attempts have been learnt.
For this reason, they are willing to come forward to sign the collective sale agreement quickly. However, some owners feel that Singapore is at the beginning of a long-term property recovery and that land prices will continue to rise indefinitely. For this reason, they feel that the collective sale should be delayed so that a higher price can be achieved in the future. Thus, they are not willing to sign the agreement.
This difference in opinion is due to the different risk/ reward profiles which each of these two groups of owners have. Some owners judge that the upside of waiting is greater than the downside of waiting, ie, if the collective sale is delayed, the land price will rise and they will get a higher price. They consider the risks of waiting, namely that developers may commit to buy other sites or that bird flu could derail the market, are small and acceptable.
Conversely, most owners feel that the collective sale prices which are achievable today are sufficiently attractive and they would like to sell now. They are mindful that the recovery in 1999/2000 was short-lived and that developers have limited budgets. Accordingly, they consider that it is not worth taking the risk of waiting.
In order to facilitate the signing process, there needs to be some bad news reported in the media to balance all the good news. Owners are influenced by sentiment and while sentiment remains good, the signing process will continue to be frustratingly slow.
The writer is executive director, investment properties, CB Richard Ellis
Pinetree plans en bloc sale with a twist
Published March 30, 2006
Pinetree plans en bloc sale with a twist
By KALPANA RASHIWALA
MOST of the owners at the 50-unit Pinetree Condominium at Balmoral Park would end up out of pocket if they did a collective sale today, as they had bought their apartments at the peak of the market.
Pinetree Condo: bidders will have to provide an exchange unit in the new project on the site to all owners who would suffer a financial loss
So their property agent Jones Lang LaSalle is proposing a collective deal in which bidders will have to provide an exchange unit in the new project they build on the site to all owners who would suffer a financial loss.
Those who will not incur a loss would have the option of receiving a cash payment from the developer.
Real estate lawyer SK Phang says current en bloc sale legislation provides that in a collective sale where the majority consenting owners are given exchange units in a new development, the minority who object to the sale must be offered a cash payment option. However, the minority still have grounds to object if they suffer a financial loss.
Under the legislation, an owner is deemed to have incurred a financial loss if the sale proceeds, after any deduction allowed by the Strata Titles Board, are less than the price paid for the property.
Another basis for objection by a minority owner to a collective sale is if the sale proceeds are insufficient to redeem the outstanding mortgage on the property.
JLL estimates that the current-day value of an exchange unit in a new development at the Pinetree Condo site would be roughly 30-40 per cent more than what the units in the present condo would fetch if sold individually today.
Owners who want a cash-out option would probably reap a lower collective sale premium of about 25 to 30 per cent. But as a market watcher points out, this premium may not be big enough to erase the financial loss for some of the owners.
Even if the financial-loss cases agree to the exchange option, other hurdles may await them - such as the expense of renting a property while they wait for the new project to be built on the current site. Likewise, owners who are renting out their apartments will have to forego rental income while the property is being redeveloped.
Owners will also have to make arrangements with their bank to roll over the mortgage to the new property, failing which they will have to redeem their existing mortgage.
Still, JLL says its proposal provides an exit opportunity for owners to move on, and that otherwise they may have no feasible way of exiting their investment under current en bloc legislation.
The original developer of Pinetree Condominium, Land Resources Group, still holds a substantial number of the project's 50 apartments, BT understands. The majority, however, are held by other individuals.
JLL is inviting bidders to take part in an expression-of-interest exercise closing on April 27. They will have to indicate their bids providing at least two options - an exchange unit, and cash for owners who want out.
Bidders are also welcome to list a third option - offering the owners a unit in a completed project by the developer nearby.
'This is the first time where competitive bids are being invited for a collective sale involving both cash and exchange options,' said JLL's regional director and head of investments Lui Seng Fatt.
Pinetree Condo is on a freehold site of 41,361 sq ft, zoned for residential use with 1.6 plot ratio and a 12-storey height limit. Bidders can also offer to buy four adjoining semi-detached houses, which would result in a bigger site of 50,329 sq ft. This would be big enough to house a new development of about 60-70 apartments averaging 1,100 sq ft, JLL says.
Trading places: a spin on en bloc sales
Published April 4, 2006
Trading places: a spin on en bloc sales
Collective exchange gives owners an instant upgrade, but it is not without problems, writes KALPANA RASHIWALA
A VARIATION of the popular collective sale called the collective exchange has been in the news lately. First the owners of Paterson Lodge concluded such a deal. And last week it was announced that the owners of Pinetree Condominium are seeking expressions of interest from developers keen on a similar proposal.
Arriving at a win-win solution: The most practical way to do a collective exchange is to get unanimous approval from all owners - whether it is for an all-exchange deal as in the case of Paterson Lodge (above), or one where there is the option of an exchange unit or a cash-out payment, as in Pinetree Condo
Basically, a developer, instead of buying the land outright from the owners, agrees to give them replacement units in the new project to go up on the site.
This has been touted as a 'win-win solution', with owners getting a new unit in the same location and the developer not having to pay upfront for the land, thereby saving on costs.
Such deals are not new, says CB Richard Ellis executive director Jeremy Lake. 'However, collective exchange transactions are few and far in between and not without their own problems,' he says. 'For a start, for such deals to work, you must have owners' unanimous approval, which means there's a higher chance of success if the number of owners involved is small and they are like-minded.'
Agreeing, Jones Lang LaSalle (JLL) regional director and head of investment sales Lui Seng Fatt does not expect the trend to take root. 'Traditional collective sales will continue to dominate because these can be done with just the 80 per cent consent level,' he says.
However, some owners and property consultants are undeterred, as the collective exchange can solve several problems.
In the case of Paterson Lodge, the collective exchange with a subsidiary of mainboard-listed Ace Dynamics was structured as a solution for the property's owners, who faced the usual difficulty in a collective sale - finding a replacement property of the same size in the same location with their proceeds.
And in the case of Pinetree Condo at Balmoral Park, the collective exchange is mooted as a way to reduce the loss for most owners, who would be out of pocket in an en bloc sale today because they bought their apartments at the peak of the market.
How do the numbers stack up?
A developer doesn't have to fork out a large amount to buy the land upfront - basically he only has to spend money on construction, so he saves on finance costs and cash outflow. The developer then splits some of this saving with the owners by offering them a higher collective sale premium through a replacement property.
JLL's Mr Lui, whose firm is marketing Pinetree Condo, estimates the current value of an exchange unit at some 30-40 per cent more than a unit in the existing development would fetch if sold individually today. Owners who want a cash-out option would reap a lower collective sale premium of some 25-30 per cent.
Some of the owners could still make a financial loss, albeit a lower one. Nonetheless, the proposal provides an exit opportunity for those willing to take a haircut and move on.
The developer makes his profit by building more and higher value units than those in an existing project. After giving the owners their exchange units, the developer is free to sell the remaining units for a profit.
But for a collective exchange to work, owners must agree unanimously on the structure of the deal, as Knight Frank executive director Foo Suan Peng, whose firm brokered the Paterson Lodge transaction, explains. This is unlike the typical collective sale, where consent from majority owners controlling at least 80 per cent of share value is sufficient, subject to approval from the Strata Titles Board (STB).
'Even in a normal collective sale, the 80 per cent that agree to the deal must include all financial loss cases since anyone making a loss will have grounds to block an en bloc sale when it comes up for hearing at the STB under current legislation,' says Mr Foo.
The same law also provides that in a collective sale where the majority consenting owners are given exchange units in a new development, the minority who object to such an arrangement must be offered a cash payment option.
This is why, in the case of Pinetree Condo, developers bidding for the property will have to provide owners with a choice of a one-for-one exchange or a cash-out option.
And the deal can still be blocked at the STB hearing if the minority argue that the cash-out price is not fair value. As Credo Real Estate managing director Karamjit Singh explains: 'Therein lies a challenge - what value should be used to determine the fair cash-out compensation for such dissenting owners?'
Knight Frank's Mr Foo says the most transparent method is to have a tender and use the highest bid as the basis for the cash-out price.
But developers not willing to provide both exchange and cash-out options will not participate in such a tender. To avoid all this hassle, consultants say the most practical way to do a collective exchange is to get unanimous approval from all owners - whether it is for an all exchange deal like Paterson Lodge, or one where there is the option of an exchange unit or a cash-out payment, like Pinetree Condo.
Even then, a host of problems can bedevil what is conceptually a win-win proposition, says Credo's Mr Singh. 'The moment owners get down to reviewing the legal paperwork, they can get overwhelmed by the issues they would have to wrestle with, and often then resort back to an outright sale,' he recounts from a recent case he worked on in the River Valley area.
There are also other issues.
Owners may have to redeem outstanding mortgages with banks when a developer starts work on their site - even if the land is not transferred to that developer until the new project is completed and those owners have received the titles to their new apartments. Owners will also have to factor in the rental expense they will incur while waiting for the site to be redeveloped.
On the other side of the fence, a contractor/developer who participates in such a scheme will have to find a financier willing to give him a construction loan without the security of the land to be developed.
'One way would be for the contractor, if it's an established company, to give a corporate guarantee tied to other assets of the company,' suggests Mr Foo.
Beverly Mai at Tomlinson Rd up for en bloc sale at $238m
23 Mar 06
BEVERLY Mai, a 32-year-old residential development in Tomlinson Road, is up for collective en bloc sale by public tender. And the price tag: $238 million.
Jeremy Lake, executive director, investment properties at CB Richard Ellis, which is also the marketing consultants, pointed out that the site is across the street from the upcoming St Regis Residences.
He said that St Regis is expected to fetch close to $2,600 per square foot.
'The upcoming launch of St Regis is creating a buzz in the area. That, coupled with a clear, unobstructed view of One Tree Hill, makes Beverly Mai an attractive site.'
At $238 million, the price of the site based on its plot ratio of 2.8 is $1,184 psf per plot ratio, inclusive of an estimated development charge of $16.8 million.
In August 2005, a unit was sold for $2.5 million. Before this, the highest price was $1.79 million in March 2004. If the asking price is achieved, owners of the 52-unit development stand to make up to a 60 per cent premium or $4.4 million per unit.
The 76,888 sq ft site can be developed up to 36-storeys and have up to 107 units if each is 2,000 sq ft. The breakeven price for the future development is expected to be $1,550 psf.
Also for sale, but in a vastly different price bracket, is Sunshine Regency. This new freehold development on Rambai Road in the East Coast, developed by Fragrance Homes, will be launched this weekend at an average $554 psf.
The marketing consultant is Real ONE International and it says a range of unit sizes from one to four bedrooms (452 sq ft to 603 sq ft) are being offered with the smallest unit starting at $361,000.
By ARTHUR SIM
Thomson Rd properties up for collective sale
3 developments have combined freehold land area of 137,500 sq ft
By ALEXANDRA HO
CAPITALISING on the momentum for collective sales, three separate residential developments off Thomson Road are joining forces to put the properties up for en bloc sale.
The properties are Lock Cho Apartment, Comfort Mansion and a walk-up apartment block at Jalan Datoh and Jalan Raja Udang.
In terms of permissible gross floor area for redevelopment, the properties together could be the largest collective sale launched so far this year.
The three properties together have a freehold land area of around 137,500 square feet.
A piece of state land of 40,500 sq ft could be incorporated into the project, boosting the total to about 178,000 sq ft.
In terms of potential GFA, it comes up to 500,000 sq ft, given the site's plot ratio of 2.8 and a height control of 36 floors.
In their first collective sale attempt, the owners are hoping to get $160 million for the combined site, or around $350 per sq ft per plot ratio, factoring in the development charge and state land costs of $14 million.
If successfully sold at $160 million, the owners are expected to get between $300,000 and $500,000 each, a 60 to 80 per cent premium over individual sale.
'The launch of the Lock Cho Apartment and its adjoining developments marks the first large-scale residential collective sale site in the Thomson Road vicinity in recent years,' says Tan Hong Boon, executive director of Credo Real Estate, who is handling the sale.
He added: 'The launch of this centrally located site is timely as the locality experiences an almost absence of such a coveted large site, which many developers are seeking to acquire.
'We feel it would be more appealing to developers if we can offer them a critical mass in size with regular plot shape for them to enjoy greater efficiency and economies of scale in construction and marketing.'
Mr Tan believes that such a large site will attract listed companies that are at least mid-sized.
He reckons developers can break even on the site at between $580 and $600 per sq ft of potential saleable floor area, with 400 apartment units of about 1,200 sq ft each.
At present, Lock Cho Apartment is a 140-unit development, Comfort Mansion has 17, while the walk-up apartment has eight units.
The apartments are around 30 to 40 years old, Credo says.
The tender for the properties will close on March 27.