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Thread: Pitfalls plague strata-titled malls

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    Default Pitfalls plague strata-titled malls

    [url]http://www.straitstimes.com/archive/saturday/premium/money/story/pitfalls-plague-strata-titled-malls-20141227[/url]

    [B][SIZE=5]Pitfalls plague strata-titled malls[/SIZE][/B]

    [B]Multiple owners spell woes in terms of collective sales and maintenance[/B]

    Published on Dec 27, 2014 12:59 AM

    By Cheryl Ong


    Supply of strata-titled shops set to increase

    THE blue seven-storey building sticks out like a sore thumb - algae-covered walls, peeling paint and sleazy pubs occupying its floors.

    The Ming Arcade, on the corner of Cuscaden Road in the Orchard Road shopping district, is a poster child for the woes besetting many strata-titled commercial blocks.

    The 32-year-old mall, which sits on 1,127 sq m of prime development land, has been put up for collective sale at least three times but without success.

    The owners of the 88-unit complex, which is next to the Forum Shopping Mall, are keen to sell their units to a single buyer and move on but there have been no takers.

    Having too many decision-makers has been the weakest link as the owners' efforts to sell were thwarted when Hotel Properties, which holds 52 per cent of the building, reversed its backing for a collective sale.

    A common problem at strata-titled malls, which number around 55, is the difficulty of getting large groups of people to agree on issues varying from a price for a collective sale to the upkeep of the property. Such malls are usually owned by many people, or subsidiary proprietors as they are called, unlike those run by professional operators like CapitaMalls Asia.

    More strata units have been built in recent years, prompting experts to warn about the pitfalls of operating in and owning shops at these developments.

    As Mr Chan Kok Hong, managing director at Savills Property Management, put it: "It's every unit owner for himself."

    Origins

    BACK in the 1960s when Singapore took steps to develop its shopping scene as the population and middle class grew, the concept of shopping malls popped into the head of developers, said Mr Chan.

    High Street, North Bridge Road and Orchard Road were the only main shopping streets then, so local developers adopted the idea of malls from the United States and Australia.

    People's Park Complex was the first strata-titled mall, developed by Mr Ho Kok Cheong, who was embroiled in a massive corporate fraud case in 2005 and died a bankrupt a year later.

    "It was the flavour of the day then; developers were not that financially strong to be able to build the whole mall and retain full ownership," said Mr Chan.

    "Ho Kok Cheong laid his hands on the site but was not really very rich.

    "So he got many people to buy units to finance it and he made the money from there."

    It was more a case of profits rather than creating a successful retail offering.

    "It's a good business decision. When a developer builds a strata mall, he's not thinking about the future of the mall; he wants an instant profit," added Mr Chan.

    Lack of teeth

    THESE malls have a management council made up of subsidiary proprietors to represent owners.

    It has powers to manage the strata-titled development, as the Building and Construction Authority's Building Maintenance and Strata Management Act stipulates.

    A professional managing agent is usually engaged to advise the management council on the running and maintenance of the strata development.

    Mr Teo Poh Siang, managing director of property consultancy and managing agent Wisely 98, noted that a management council is required by law only to oversee that the "common property" at these malls, such as corridors, lifts and escalators, are in working condition.

    "Its purpose is to collect and oversee funds to do what is necessary to just maintain the common property," said Mr Teo.

    Falling into disrepair

    WHILE this means that the building's lifts, lights and escalators are likely to be working, the management council might not be motivated or have the resources to keep the mall in pristine condition.

    Strata-titled malls, which happen to include many of Singapore's oldest properties, often fall into disrepair and pale in comparison with flashy new-style malls managed by professionals.

    Management councils, said Mr Teo, do not have the objective of making a profit, unlike institutions such as real estate investment trusts (Reits).

    With a duty to deliver quarterly results and dividends to its unitholders, it is in the interest of Reit managers to ensure that malls are not run-down.

    The multiple owners at strata malls also do not always see eye to eye on the lengths they are willing to go to maintain the property, said Mr Chan.

    "There will be those who say 'just do the minimum'.

    A representative from Ming Arcade's management council told The Straits Times that problems crop up when owners' contributions need to be increased in the face of escalating maintenance fees.

    Management councils typically oversee two accounts - the maintenance and sinking funds - to which all owners contribute. The maintenance fund is set aside for regular services such as cleaning and security, while the sinking account is for longer-term projects such as replacing faulty structures in the building.

    Getting refurbishment works done can be like trying to herd cats - the works can be carried out only if a majority of the owners agree. Some owners sit on the management council.

    "Owners with many units and a larger share naturally will incur higher costs. So they're not willing to approve it when voting for more contributions. And the resolution will not be passed because they have the majority stake," he said.

    Problems aplenty

    MORE problems arise because management councils cannot control how units are used.

    The lack of vision has left these malls evolving organically and taking on a character of their own. Singapore's shopping scene, as a result, is a mixed bag of glitzy malls and dingy complexes.

    "Orchard Road starts with steetwalkers and ends with streetwalkers," in the words of a prominent industry player and professional mall manager, referring to Orchard Towers in Claymore Road and Orchard Plaza in Kramat Lane. Both are famous for their seedy nightclubs and bars.

    Bukit Timah Shopping Centre, for example, was popular with shoppers in its heyday but has become a pale shadow of its former self with a proliferation of maid agencies today.

    A key reason is that owners have different priorities.

    "Say you own a shop and someone walks up to you and says he wants to pay $5 per sq ft (psf) each month, and the next agent says he'll pay you $10 psf, you'll go for $10 psf. You won't care whether he sells food in there or is a hairdresser," said Mr Chan.

    Different rental expectations also mean that leases can be haphazard at strata-titled malls. At Ming Arcade, for instance, monthly rents can vary from $3 psf to $4.20 psf.

    Mr Leonard Tay, associate director of research and advisory at Colliers International, said the success of a retail mall lies "fundamentally" in its ability to attract shopper traffic.

    "That is usually generated and sustained by having a good mix of tenants comprising complementary trades, as well as a well- planned positioning that is in line with the demographic profile of its catchment population," said Mr Tay.

    Institutional malls are in a "better position" to manage this because it has a single point of control in terms of marketing, management of tenants or property, added Mr Desmond Sim, research head of CBRE South-east Asia.

    However, if the strata mall's management council believes in keeping up the condition of the complex, the outcome can be appealing.

    An optometrist, who wanted to be known only as Mr Yew, has been at Bukit Timah Plaza since 1978. He noted that the centre's management council has taken the initiative to organise festive promotions such as freebies or lucky draws to attract shoppers. Newer tenants such as sandwich chain Subway have also been introduced to the mall to attract younger shoppers to invigorate the retail offerings.

    Differentiation and flavour

    THE common gripe among shoppers is a lack of differentiation among retailers at "cookie cutter" malls run by professionals.

    Although electronics mall Sim Lim Square has come under scrutiny for its tenants' questionable sales tactics, the complex is best known for its array of computer parts not found at chain outlets.

    Strata-titled malls can have a distinct and unique positioning when a handful of retailers in the same trade congregate, noted Mr Tay. Lucky Plaza, for example, is known for its Filipino shops and patrons while Golden Mile Complex is a popular hangout for Thais.

    Strata malls, with a wider selection of goods, also provide alternatives for consumers.

    Ms Jam Alarma, a Filipino executive in a relocation firm, said she frequents Lucky Plaza to remit money home, or to dine at Jollibee, a Filipino fast food joint found only at that mall.

    Smaller retailers and entrepreneurs find rents of strata units more manageable than those run by Reits, and such malls give them a place to thrive.

    Mr Raymond Koh, whose musical instrument store The Pianoman's Shop is in Bukit Timah Plaza, said tradesmen like him "do not like to touch those malls" as there are also restrictions on opening hours and operating days.

    Back in fashion

    WITH more mixed developments in the pipeline - Junction Nine in Yishun Avenue 9, ARC 380 in Jalan Besar and Alexandra Central in Jalan Bukit Merah are all under construction - the supply of strata-titled shops will only increase.

    Strata-titled shops will account for about 15 per cent of the total retail space available by 2019 with 345,000 sq ft - or about 1,300 strata units - expected to be completed in the next 12 months, according to estimates from Chestertons.

    To keep up with the times, a two-tiered management corporation scheme has been introduced: A main council on the first tier and one or more subsidiary councils on the second. The subsidiary councils govern the retail and residential components separately and remove any conflicts between the different stakeholders.

    But the experts cautioned that history can only repeat itself at these newer malls. Yield-hungry investors who have flocked to snap up units after being driven out from the residential market by cooling measures should be prepared to lower their expectations, they said.

    The concern is whether there is enough demand to meet the supply and if the retail mix at the newer strata malls would work out better compared with their older counterparts, said Mr Chan.

    "There's no light at the end of the tunnel. You're going to have shopping centres with a hodge-podge of retailers again. The same problems will come back."

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    Penisula plaza is a good example for the risk in strata titled shopping centre. MC and MA have a difficult time to control the type of tenancy as it is normal for owners to go for maximum rental. It has since become a little Myanmar. Shops without floor trap selling cooked food.

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