GIC RE in US$1.3b purchase of property fund stakes

GIC RE in US$1.3b purchase of property fund stakes

GIC Real Estate (GIC RE) has bought all of US-based ProLogis’s property fund interests in Japan and China for US$1.3 billion.

ProLogis, said to be the world’s largest owner, manager and developer of distribution facilities, has a China Properties Fund and two Japanese funds, according to its website.

GIC RE said yesterday that it would manage the new portfolio through a 50-50 joint venture formed with former ProLogis chairman and chief executive Jeffrey Schwartz, as well as ‘managers involved in the management of the properties both in China and Japan’.

Mr Schwartz, who had resigned last month without citing a reason, according to an Associated Press report, was appointed chairman of the joint venture.

He said that the logistics property businesses in Japan and China have ‘very good long-term prospects despite the current global economic climate’. ‘Our immediate priority is to ensure that the individual assets in Japan and China continue to be well managed.’

GIC RE president Seek Ngee Huat said: ‘The acquisition consolidates control over our existing portfolio in Japan and provides a platform to expand our logistics property business in China.’

The transaction is due to be completed in January next year.

Source : Business Times - 24 Dec 2008

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Singapore HDB invites tenders for Sengkang market

Singapore HDB invites tenders for Sengkang market

By KEITH CHEE

THE Housing and Development Board (HDB) began inviting tenders yesterday for a land parcel in Sengkang New Town for the building and managing of a market and food centre. The land parcel has a site area of 6,000 square metres and a maximum gross floor area of 4,000 sq m.

The tenure is for an initial five years with options for another two terms. The development will house an estimated 100 stalls offering fresh market produce and cooked food, as well as parking lots and a drop-off porch.

The tender arose from the Forum on HDB Heartware, which among other things, recommended the building of wet markets and hawker centres to promote community bonding and strengthen local identity. Sengkang was chosen for the pilot project as it is a new town and many requests have been made for another market and food centre.

Despite the dismal economic climate, Nicholas Mak, Knight Frank’s director of research and consultancy, expects the response to be positive. ‘The Sengkang area is a growing estate housing about 140,000 people at the moment and the location of the market is quite attractive as well, with it being surrounded by high-density flats and quite near the MRT,’ he said, adding that the project would most likely be taken on by a contractor that frequently works with the HDB.

Source : Business Times - 24 Dec 2008

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US commercial real estate asking for govt help too - WASHINGTON

US commercial real estate asking for govt help too - WASHINGTON

Hotels, offices and malls’ record debts are due soon

(WASHINGTON) Some of the biggest US commercial real estate players are asking the government for help, as their US$6 trillion industry of hotels, office buildings and shopping malls faces a record amount of debt due in the next few years.

Trade association executives said that in the last few weeks they have met with members of President-elect Barack Obama’s transition team, Congressional leaders and officials at the Treasury Department and Federal Reserve to make their case for assistance.

In the next three years, they pointed out, an estimated US$530 billion of commercial mortgages will come due for refinancing - with about US$160 billion due next year, according to Foresight Analytics, based in Oakland, California. But with the credit markets virtually collapsed, thousands of those properties could go into foreclosure or bankruptcy if owners are unable to get new loans.

‘If you can’t get a loan and you owe the bank the money, you have to find the cash to pay the loan back or you default on the property,’ said Steven A Wechsler, who has been lobbying as president and chief executive of the National Association of Real Estate Investment Trusts, a District of Columbia association with 3,000 members. ‘Banks’ jobs are to make loans, not own real estate. That’s something we’d like to avoid. It could be a downward spiral that’s driven by a compromised system of credit delivery. Some constructive step by federal policy-makers would be wise and appropriate to be able to free up the market.’

The real estate industry is going to the government for help because ‘they can’, said Jim Sullivan, a managing director at Green Street, a real estate research firm in Newport Beach, California.

‘They see what everybody else has gotten,’ he said. ‘Real estate is a capital-intensive business and there is no capital. They will take cheap money from whoever is giving it out and now there’s only one source - the government.’

The trade associations are asking that their members be included in a US$200 billion lending facility that was created by the government for consumer debt such as car loans, student loans and credit cards. In a recent letter to Treasury Secretary Henry Paulson, industry leaders described the troubled situation. ‘The paralysis of credit, which began in the short-term market, has coursed through the system and it now severely affects longer-term credit, especially secured and unsecured commercial real estate loans,’ they wrote.

When Mr Paulson announced the US$200 billion initiative, he noted that it could possibly be expanded to aid the commercial real estate market.

The real estate groups say they aren’t asking for direct bailouts for their members, but rather for credit market support.

‘This is the same thing they’re doing for car loans and student loans. We’re asking them to help restart the credit markets for commercial real estate mortgages,’ said Jeffrey D DeBoer, president and chief executive of the Real Estate Roundtable, a major industry trade group.

‘Banks can’t possibly absorb, manage and turn around properties at this scale if they come back to the lenders,’ he said.

The commercial real estate market boomed in the last few years, fed by easy credit. But starting in mid-2007, the credit crisis essentially froze the securities market.

The amount of new commercial mortgage-backed securities - loans that are sliced, packaged and sold as bonds - fell from US$200 billion in 2007 to only US$12 billion in the first six months of the year, Mr Wechsler said. ‘We’ve gone from 55 miles per hour to zero,’ he said.

When money was flowing, investors drove up the prices of real estate, banking that rents and occupancy rates would keep going up. But cash from properties is falling as more space becomes available and rents drop, making it harder for owners to repay their debts.

While delinquency rates are low, they increased by one-third in November to 0.96 per cent and could rise to more than 3 per cent by the end of next year, according to figures from Deutsche Bank.

Atlanta, Detroit, New York and Tampa are among the markets showing signs of rising defaults. In the Washington region, defaults are below the national average.

‘It won’t help the economy if commercial real estate continues to fall like residential,’ said Lisa Pendergast, managing director of commercial real estate finance at RBS Greenwich Capital Markets.

‘Then ultimately it will cause the recession to lengthen and deepen.’ - LAT-WP

Source : Business Times - 24 Dec 2008

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Crunch time looms for Singapore industrial property

Crunch time looms for Singapore industrial property

Rents, capital values could see double-digit percentage falls, but correction may not be a bad thing

By EMILYN YAP

(SINGAPORE) The industrial property sector, which had grown at a steady pace for most of 2008, is unlikely to escape from the economic downturn that has hit its residential and office counterparts.

As manufacturing activity dips and relocations from offices slow, some property consultants believe that industrial rents and capital values could register double-digit percentage falls starting from Q4 2008. Industries could also start sub-letting space that they no longer need.

‘With an expected slowdown in GDP growth and poor expectations of the performance of the manufacturing sector, demand for industrial space is likely to moderate,’ said DTZ’s senior director of research Chua Chor Hoon.

‘The fourth quarter could be the turning point,’ noted Knight Frank’s head of industrial business space Lim Kien Kim.

According to DTZ data, growth within the industrial sector in the first three quarters of the year pushed the average rent of first-storey private industrial space up 6.8 per cent to $2.35 per sq ft per month (psf pm) in Q3. That of upper-storey space rose 7.9 per cent to $2.05 psf pm.

But rents could slide in Q4 as the manufacturing sector cools, said Ms Chua. The Singapore Purchasing Managers’ Index fell for the third straight month in November, reflecting tougher times for manufacturers.

DTZ estimates that average rents of first-storey and upper-storey private industrial space could each drop by more than 2 per cent from the previous quarter to $2.30 and $2.00 psf pm, respectively, in Q4.

High-tech and business park spaces are likely to face the same sinking fate. Rents had jumped 15.4 per cent to $4.50 psf pm in the first three quarters, largely because more companies were moving over to avoid soaring office rentals.

The average occupancy rate in private sector business parks notched up 6.3 percentage points from Q4 last year to 93.2 per cent in Q3 2008, said DTZ.

‘Businesses, including those occupying prime office space, increasingly found business parks to be attractive alternatives for housing approved back- end operations,’ said Mr Lim.

But such spillover demand could slow as office rents fall amid a weakening economy. DTZ projects that the average rent of high-tech and business park space could drop to $4.30 psf pm in Q4, more than 4 per cent down from Q3.

As Colliers International’s research and advisory director Tay Huey Ying said: ‘Modern light-industrial and hi-specs industrial buildings would be worst hit as they will suffer from the double whammy of slowdown in demand from industrialists as well as from office users.’

She noted, however, that the industrial property sector had started to cool from the second half of 2008. Colliers’s data pointed to a slight fall in rents of hi-specs space in H2, while those of factories and warehouses stayed flat in the same period.

As the downturn hits businesses, industrial tenants could start moving to cheaper locations, said Ms Tay. She also expects more downsizing companies to sub-let part of their premises.

DTZ’s Ms Chua shared similar views. ‘We may see some shadow space in the industrial sector next year, like what we are beginning to see in the office sector, as more companies consolidate their operations.’

Industrial landlord JTC Corporation has been taking back more space as manufacturing and related companies merged their operations. According to its quarterly facilities report for Q3 2008, termination at its ready-built facilities surged 25.7 per cent quarter-on-quarter and 45 per cent year-on-year.

‘Industrial landlords could be more flexible in the coming months in order to maintain the occupancy levels of their industrial portfolio,’ said Knight Frank’s Mr Lim.

He estimates that for 2009, industrial rents could slide 7-12 per cent and prices by 10-15 per cent, with modern industrial space and business parks facing greater declines.

Ms Tay from Colliers believes that rents of conventional flatted factories and warehouses could drop by 12-15 per cent next year, while those of hi-specs industrial space could fall further by up to 20 per cent.

‘Capital values are expected to soften by the same quantum as industrialists choose to conserve cash for their business operations instead of investing in an industrial unit,’ she said.

Economic uncertainty has already spurred the Trade and Industry Ministry to suspend sales of state-owned industrial land on the Confirmed List for the first half of 2009.

While industrial rents and prices will fall, the sector is nowhere near a crash. ‘The speculative element in industrial sector is not major,’ said Mr Lim. As prices moderate to more realistic levels, ‘the correction will be good as it will again draw investments back into industrial activities for Singapore’.

Source : Business Times - 24 Dec 2008

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