Singapore Economy Economists expect Singapore economy to grow 5.4% in Q1 Source: Straits Times The stronger manufacturing sector and better global outlook should have helped the Singapore economy pick up the pace in the first quarter, say local economists. They tip that the economy grew 5.4 per cent in the first three months over the same period last year - partly due to a low base in 2013 when growth rose a meagre 0.6 per cent.
Singapore Real Estate Cargill is first tenant at CapitaGreen It is said to be taking nearly 50,000 sq ft at a monthly rent of over $9 psf Source: Business Times / Companies CAPITAGREEN, a new 40-storey Grade A office tower that will be completed on the former Market Street Car Park site in the fourth quarter, has landed its first tenant. Cargill is said to have signed a lease for close to 50,000 square feet on slightly over two floors. The monthly rental is understood to have crossed $9 per square foot (psf). Swiss private bank Bordier & Cie is also thought to be on the verge of inking a lease for about 11,000-12,000 sq ft - or half a floor - in the building. It is expected to move out of its current location at GB Building along Cecil Street.
A serviced office operator is also in discussions to lease a floor at CapitaGreen, according to market talk. -By Kalpana Rashiwala http://www.businesstimes.com.sg/premium/companies/others/cargill-first-tenant-capitagreen-20140411 Mandatory training for condo managing agents likely soon Source: Straits Times Managing agents for condominiums may soon be required to undergo training in a move to raise standards in the strata management industry. "We are considering introducing a training requirement for all managing agents," a senior Building and Construction Authority (BCA) official said yesterday.
Developer looking beyond residential property Source: Straits Times Developer Lian Beng Group is pulling back from the slowing residential property sector, executive chairman Ong Pang Aik said yesterday. Mr Ong told The Straits Times that the firm is not worried about the poor market as it has stopped residential development for a while.
Builders' pain is arbitrators' gain Source: Straits Times Tighter times in the building trade and developments on the legal front are likely to lead to more payment disputes between developers and sub-contractors. Cash flow is slowing down fast as buyers put the brakes on the residential housing market but it is also generating more work for arbitrators.
New BCA scheme to help construction companies go green Source: Channel News Asia / Business SINGAPORE: A scheme to get small construction firms to adopt green work practices and be gracious was launched on Thursday by the Building and Construction Authority (BCA). Under the voluntary scheme, firms are required to implement measures to minimise dust and noise. This will benefit residents who live near projects handled by small firms. Separately, BCA also announced a revised Green and Gracious Builder Scheme for larger firms. Straits Construction, which is developing a residential project in Kovan, has put up natural and high tech sound barriers to minimise the noise generated. It has also put up special netting to minimise dust from reaching the surrounding neighbourhood. The company also sends its staff around the neighbourhood on a regular basis to get residents' feedback on issues ranging from trucks blocking the streets to dust. Beyond that, it also looks inwards to focus on the welfare of its 350 or so workers. This includes building a gym, reading area and even a vegetable garden where workers can grow produce. For its efforts, the company has been awarded the "Star" rating at this year's Green and Gracious Builder Award. It is one of 21 builders recognised for its efforts, and will receive its award on May 22. The features at this construction site are some of the ways BCA said larger firms can implement the human resource touch into their gracious practices. In fact, it is an enhanced feature in the revised scheme. The revised Green and Gracious Builder Scheme will become mandatory progressively from 2015 onwards. Larger construction firms wanting to take on public sector projects will need to be certified under the scheme in order to register or renew their registration. BCA expects some 400 firms to be certified under this scheme by 2016. However, BCA acknowledges some of the criteria under this scheme may not be relevant to smaller firms, hence the need for a separate scheme. Dr John Keung, CEO of the BCA, said: "Take for example, a site office. When you are working on a big construction project, you need a site office. But if you're just building one bungalow or two terrace houses, you don't need a big site office. So there is no issue of using energy-efficient lighting or air-conditioning for your site office." As for challenges faced by smaller firms in implementing features to mitigate noise and dust, it is all about planning ahead. Tan Soon Kian, managing director of Unison Construction, said: "You need to price this into the tender so that at least during the construction, you don't say (you're) out of budget because you've already provisioned for this measure." Residents said having a good working relationship benefits all parties. Pok Chye Heng, a Kovan resident, said: "They will be here for at least two to three years. So the relationship is just like (one with) a neighbour. If you have a bad neighbour, every day you will face problems and more problems (will be introduced). If the relationship is not good, you will try to pinpoint issues and it'll take more time to solve the problems." Mr Pok said it is less time consuming when there is an open channel of discussion with those involved.
- CNA/ac http://www.channelnewsasia.com/news/singapore/new-bca-scheme-to-help/1066974.html Big plans for Little India lane Source: Straits Times Away from the hubbub of Little India is a quiet, dusty 80m stretch known as Campbell Lane, usually ignored and frequently forgotten. The Indian Heritage Centre (IHC) - a monolithic, concrete structure to be completed next year - dominates the street, deterring visitors with construction and noise.
Real Estate Companies' Brief Is UIC's offer for SingLand fair? Source: Business Times / Companies WHEN United Industrial Corp (UIC) made a takeover offer for its 80.36 per cent subsidiary Singapore Land (SingLand), it seemed to be a breeze to cross the 90 per cent threshold for compulsory acquisition to take place. All was well and good when UIC's independent financial adviser ANZ termed the offer as "fair and reasonable" and shareholders were advised by independent directors to accept the offer. But many eyebrows were raised when SingLand's second-largest shareholder, Silchester International, threw a spanner into the takeover bid by selling 13.25 million SingLand shares on the open market. The transaction lowered the US-based fund's holding to about 4.95 per cent, down from a substantial 8.16 per cent. The move by Silchester also meant UIC having to acquire more than 9 per cent of outstanding shares for the delisting to take place. Earlier, UIC would need to secure only just above one per cent of the shares from the free float as Silchester's substantial 8.16 per cent stake was not deemed to be part of the public float under SGX listing rules. Under Singapore rules, it is deemed that a company needs to delist if less than 10 per cent of its shares are in the public float. While UIC will still be able to seek a voluntary delisting of SingLand if it does not garner sufficient shares in SingLand, the move by Silchester has raised the question of whether the exit offer was fair. Looking at the way the share price of SingLand has responded to the offer, it would appear that investors do not agree with the offer price of $9.40 a share. SingLand shares have been trading above the offer price on most days since the offer date. This would defy logic given that UIC has already said it will not revise the offer price. When considering the fairness of a takeover offer, the independent financial adviser typically looks at past transactions over one year. While this is common market practice, the outcome in this case is a list of companies across vast industries that are not exactly comparable. The delisting of some Chinese companies last year also skewed the list somewhat with their lower offer premiums. Even going by this not-all-perfect list of comparables, the offer premium for SingLand is lower than the median seen for successful delisting offers and privatisation offers last year. Offer premiums If one were to narrow the list to purely Singapore-based developers that have delisted in the past few years, the companies making the list would be MCL Land, Allgreen, and SC Global. By comparing the offer premium for SingLand with the offer premiums for these companies, it would appear that UIC's offer price for SingLand represents a measly premium of 11.2 per cent over the last transacted price before the offer date, compared with the takeover offer premiums of 25.6 per cent for MCL, 39.13 per cent for Allgreen and 49.4 per cent for SC Global. The premium gap would be wider when we look at the offer premium over a one-year volume weighted average price (VWAP). It would be 7.85 per cent for SingLand, compared with 30.2 per cent for MCL, 43.2 per cent for Allgreen and 71.1 per cent for SC Global. Arguably, market conditions are now different from those prevalent when the takeover offers for the other property companies were made. But the softening property market sentiment should already have been priced into the share price of SingLand. Hence, it would not be fair to say that a smaller offer premium is justified because of weaker market conditions. The starkly smaller premium for SingLand becomes less justifiable when one considers that shares of MCL, Allgreen and SC Global all had a strong run-up of more than 50 per cent over the preceding one year prior to their offer dates - this again reinforces the argument that stronger market conditions then were priced into the shares of those property counters. It could be that MCL, Allgreen and SC Global's larger free floats at the time of their delistings meant that a more compelling offer was required to gain sufficient acceptances from shareholders. But the rather small pool of public investors in the case of SingLand should still deserve their fair share of returns for having stuck with the company through past property cycles. Minority shareholders of SingLand risk being worse off holding illiquid stocks if they choose not to accept UIC's offer by the close of the offer. They are perhaps better off accepting the offer and use the cash to buy into a higher yielding property stock. More time Yet, at the same time, they are finding the exit offer from UIC less appealing, relative to the gains of shareholders of other property developers that delisted. UIC probably realises that minority shareholders need more time to decide on the offer when it extended the closing date for the offer from April 7 to April 21.
But whether it realises how its offer is viewed by other investors remains a big question mark. Hopefully, the exit of SingLand from the Singapore bourse will not leave shareholders with a bitter aftertaste when it is within UIC's means to make the parting sweeter. -By Lynette Khoo http://www.businesstimes.com.sg/premium/companies/others/uics-offer-singland-fair-20140411 Will Sky Habitat price cut nudge others? CapitaLand will relaunch the Bishan project priced from $1,370 psf Source: Business Times / Singapore AMID mounting pressure from upcoming condominium launches, at least one condo project will be re-launched at lower prices. CapitaLand's Bishan project Sky Habitat will start at $1,370 per square foot (psf) on April 19, says a promotional pamphlet from one of its marketing agents, Knight Frank. This is a drop from two years ago, at the project's first launch, when prices ranged from $1,435 to $1,893 psf. The average selling price then was said to be about $1,650 psf, after taking into account the initial 3 per cent discount given to all buyers. It was what gave this development designed by Moshe Safdie the reputation of being the most expensive suburban condo here. Only 36 per cent of its 509 units have been sold, as the project nears TOP (temporary occupation permit) next year. With the re-launch, a one-bedroom cum study could start from $1.05 million or $1,485 psf, down from about $1,600 psf previously.
This is not the first time CapitaLand has pared prices for its residential projects; it did so for Interlace in Alexandra and D'Leedon in the former Farrer Court Estate. Its latest move has, however, set observers thinking about whether others will follow suit. -By Lynette Khoo & Cai Haoxiang http://www.businesstimes.com.sg/premium/singapore/will-sky-habitat-price-cut-nudge-others-20140411 Lian Beng nine-month profit jumps 67% to $50.3m Revenue also rises 67% to $585.6m; group to continue to focus on construction segment Source: Business Times / Companies CONSTRUCTION company and developer Lian Beng recorded a 67 per cent jump in net profit to $50.3 million for the nine months ended Feb 28 as it recognised profit from its industrial project that was just completed. Revenue also grew 67 per cent to $585.6 million, mainly bolstered by its industrial development property M-Space, which attained TOP (temporary occupation permit) in January this year. Lian Beng's executive chairman, Ong Pang Aik, noted that the group's stronger revenue was not solely due to the recognition of M-Space as revenues from construction and ready-mixed segments also showed improvement.
The construction segment remained a key driver to the group revenue for the first nine months of fiscal 2014, contributing about 53 per cent, while its property development and ready-mixed concrete segments contributed 30 per cent and 15 per cent respectively. -By Lynette Khoo CCM completes S'pore Construction deal Source: Business Times / Companies Construction firm CCM Group has completed the acquisition of Singapore Construction Pte Ltd. The wholly owned subsidiary is the new construction arm of CCM. Meanwhile, Singapore Construction has entered into a deal to be a sub-contractor for four projects of the Hauslab Group; it is also the main contractor for Hauslab's new projects. http://www.businesstimes.com.sg/premium/companies/others/company-briefs-20140411 Views, Reviews & Forum Computer-generated value: Does it help or mislead? Source: Today Online / Business The Housing and Development Board (HDB) last month revised its resale flat policy to require buyers to sign the option to purchase before getting a valuation, effectively consigning the concept of cash-over-valuation (COV) to history. As expected, there has been some confusion since, as buyers and sellers look for new ways to find the “market price” of resale flats offered for sale. Some industry players quickly sought to provide alternatives to the COV to plug the information gap. They feel that the COV, under whatever new name it may be called, will remain as it fulfils a real market need. Enter the machine-generated value. There are tools in the market that purport to estimate the value of a property with a high level of accuracy based on the past transacted prices of comparable units. However, its introduction has been controversial. Because it is computer-generated, valuation purists are up in arms. If a machine can replace a valuer, where is the professionalism? Can you sue a machine for negligence for generating a wrong value? Of course, there are caveats on its use and exclusion clauses, but few pay attention to them. A recent test of several such tools showed the estimated values generated were close to the actual valuation for some properties, but there were also many that differed by wide margins, said a media report. Proponents of these machine-generated values maintain that they have a high level of accuracy as the results are close to the figures arrived at by human valuers in the majority of cases. However, the shortcomings of machine-generated values are obvious. For example, a machine cannot tell whether a particular flat faces a rubbish dump. It cannot tell whether it has an odd-shaped layout nor can it judge the quality of the renovation. It cannot tell whether there is any obstruction of view even if the flat is on a high floor or for that matter, appreciate the views the unit may offer. Even if most of the estimated values generated by the machine are close to those provided by valuers, the timing of the valuation has now changed. The valuer now has the benefit of the flat being exposed to the market for a decent length of time and only needs to affirm whether the premium placed on some of the flat’s features are justifiable or unreasonably high. If most valuations end up close to the actual prices, what added value does the machine-estimated figure provide? Aren’t high COVs the market’s real concern? As properties are not perfect substitutes for each other, the estimated values for some “special” flats without the benefit of a site visit can be off the mark by quite a margin. Are you willing to take that chance? Machine-estimated values will be most useful and beneficial in cases where the flat concerned is a very popular unit. This is because such units often attracted very high COVs in the past and it would help a potential buyer immensely to know how much cash he or she will need to have. Yet, if you examine all flats sold with very high COVs in the past, you will notice they all came with unique features that a machine cannot factor into its computation. If machine-generated values cannot help in such situations, where can they contribute? If they are redundant in most cases or misleading in others, we would be better off without consulting such values in the first place. All right, so estimated values are not useful now, but what happens when the market starts to shoot up again? Then, even a small lag can be significant depending on how fast selling prices are submitted and updated in the HDB database and when the actual valuation is conducted. My own assessment is that this will not happen. This is because new HDB flat prices have been de-linked from resale ones for some time. This is an important point to note because if new flat prices remain stable, resale ones cannot stray too far before buyers factoring in value-for-money buy directly from the HDB. The de-linking of prices is an in-built automatic stabiliser.
So, if you are a worried buyer or seller, whether now or in the future, let me assure you that the COV will not make a return in whatever form. -By Colin Tan http://www.todayonline.com/business/computer-generated-value-does-it-help-or-mislead Property deals: Conflict of interest is the issue Source: Straits Times In her letter ("Unfair rent practice"; March 21), Ms Fong Hang Yin had suggested that the Council for Estate Agencies (CEA) require the tenant and the landlord to pay commission to their respective real estate agents, so there will be no conflict of interest. Fire exit doors: SCDF replies Source: Straits Times We agree with Mr Gary Ow that fire exit doors in buildings should open outwardly or towards the direction of escape, to facilitate mass evacuation during an emergency ("Outward-opening fire exit doors"; last Friday). This is already a fire safety requirement as stipulated in the Fire Code, which building practitioners must adhere to when designing fire safety measures in buildings. http://www.straitstimes.com/premium/forum-letters/story/fire-exit-doors-scdf-replies-20140411 Global Economy & Global Real Estate Fed downplays own forecasts for interest rate rise Source: Business Times / Top Stories [WASHINGTON] The Federal Reserve played down predictions by some of its own policymakers that interest rates might rise faster than they had forecast earlier. "Several participants noted that the increase in the median projection overstated the shift in the projections," according to minutes of the March 18-19 meeting of the Federal Open Market Committee (FOMC) released on Wednesday. Some expressed concern the rate forecasts "could be misconstrued as indicating a move by the committee to a less accommodative reaction function." US stocks rallied the most in a month while Treasuries pared declines after the minutes eased concern about the timing of future interest-rate increases. Even after rates rise, officials said last month, they might have to be kept at levels considered below normal for longer because of tighter credit, higher savings and slower growth in potential output.
The minutes reinforced Janet Yellen's message at her debut press conference as chair last month that the interest-rate forecasts of policymakers - which are displayed as a series of dots on a chart - are less important than the Fed's post-meeting statement. -From Washington, US Albedo trying to salvage Iskandar deal Source: Business Times / Companies CATALIST-LISTED Albedo is fighting hard to salvage a $1.86 billion reverse takeover deal to acquire huge tracts of Iskandar land from Malaysian tycoon Danny Tan. The ailing steel trading firm said yesterday that it had met with representatives of Infinite Rewards Inc, a private vehicle of Mr Tan and family, on April 3 and that the parties were trying to resolve outstanding issues related to the acquisition of Reflections Oasis - a wholly owned developer of Infinite Rewards. Albedo said that both sides were "endeavouring to resolve issues" pertaining to the proposed acquisition and to meet the conditions precedents in the sale and purchase and supplemental agreements.
The long-stop date - which refers to when conditions in a contract or agreement have to be met - for the deal to pull through is Sept 19, 2014. Until then, Albedo said that the agreements remained valid and legally binding. It further added that the deal had not been terminated and that due diligence on the acquisition had begun. -By Anita Gabriel China’s Shanghai Zendai to invest S$10b in South African project Source: Today Online / Business JOHANNESBURG — China’s Shanghai Zendai Property plans to break ground next year on a massive 84 billion rand (S$10 billion) new city development near South Africa’s commercial capital of Johannesburg, said its Chairman yesterday. The 1,600ha Modderfontein New City will include offices, a light industry park, housing for 100,000 people, schools and entertainment centres and is expected to take at least 15 years to complete. The development will see three billion rand in infrastructure spending in the next three years, with initial construction to focus on schools and homes, Shanghai Zendai Chairman Dai Zhikang said. The project will be 7km from Johannesburg’s financial hub of Sandton and 8km from South Africa’s main international airport. It is described as an international residential community and may attract some of the 300,000 Chinese nationals in South Africa. However, Ms Nomvula Mokonyane, Premier of South Africa’s Gauteng province, which includes Johannesburg and the capital of Pretoria, said she hoped local residents would benefit from both jobs and housing. Shanghai Zendai last year agreed to pay South African commercial explosives firm AECI around one billion rand for the land.
While Chinese companies have been building roads and infrastructure across sub-Saharan Africa for years, Shanghai Zendai’s project will be among the largest real estate deals by a Chinese firm in Africa’s most sophisticated economy. REUTERS http://www.todayonline.com/business/chinas-shanghai-zendai-invest-s10b-south-african-project Drive to save Moscow's crumbling 'Eiffel Tower' The 148m Shukhov tower was built in 1922 to give Russia a strong radio signal Source: Business Times / Property [MOSCOW] Thousands of Muscovites and several top international architects have launched an unprecedented campaign to save an elegant steel tower that has loomed over Moscow's skyline since 1922. The Russian Communications Ministry says it will dismantle and relocate the Shukhov tower, a masterpiece of design often compared to the Eiffel Tower in Paris. But campaigners fear the tower will simply be demolished because it will be impossible to dismantle it and put it back together again. It is the first time a campaign to save a historic building has received such a wide public following, not just from among architecture enthusiasts.
Government and city officials are set to meet campaigners for talks on the tower this week that may decide its future. The campaign is not just about saving Moscow's crumbling early Soviet architecture, but also about people having a say in government decisions. -From Moscow, Russia http://www.businesstimes.com.sg/specials/property/drive-save-moscows-crumbling-eiffel-tower-20140411 Home-naming tradition makes 21st Century revival In the US, people are treating their homes more like the rest of their digital identity Source: Business Times / Property [NEW YORK] Sasha Lord has never met the residents of Hell or Namaste, Om shanti, but she has spent a lot of time thinking about them. For a while, every time Ms Lord, a 32-year-old band promoter in Arlington, Virginia, posted a photograph on Instagram from her studio apartment, she was reminded of their existence. Select filter. Write caption. Name location. It was during that final step in uploading her photo that a list of places nearby would pop up - not just the names of businesses in the area, but nicknames people had given their homes. Hell and Namaste, Om shanti were always near the top.
Courtesy of geotagging software, Ms Lord was being introduced time and again to two of her closest neighbours and their diametrically opposed outlooks on life. -From New York, US Nobel Prize to finally get a place of its own in Stockholm Source: Business Times / Property [STOCKHOLM] The Nobel Foundation unveiled on Wednesday the winning design for a building that will give the world's most prestigious prize a home for the first time in its 100-plus-year history. The foundation hopes to inaugurate the 25,000 square metre building in 2018, when it is expected to house nearly all its activities, including the Nobel Prize ceremony and the Nobel museum. "The winner of the architecture competition of the Nobel Centre is David Chipperfield Architects in Berlin," Nobel Foundation executive director Lars Heikensten said at a press conference.
The Nobel Centre, with a 1.2 billion kronor (S$230.4 million) budget, will be built in a historic district, surrounded by water and near some of the city's museums and landmarks. -From Stockholm, Sweden Dutch House Prices See First Rise in 3 Years as Economy Recovers Source: Bloomberg / Luxury Dutch home prices rose for the first time in three years as an improving economy boosts consumer confidence, the Netherlands’ real estate brokers association said. Values increased 1.2 percent in the first quarter to 209,000 euros ($289,740) from the same period a year earlier, property brokers association NVM said today in a statement. Transactions dropped by 8.1 percent from the previous quarter, reflecting a seasonal slowdown that has averaged 10 percent over the last 20 years. “Price recovery has begun, though there are big differences when it comes to regions and house types,” NVM Chairman Ger Hukker said in the statement. Price declines slowed for several quarters prior to the increase, he said. Home prices in the Netherlands have dropped more than 21 percent since 2008, leaving a third of the owners with debt exceeding the value of their property. The Dutch economy, the fifth-largest in the euro area, emerged from a year of recession in the third quarter as exports benefited from a nascent recovery in the region. It was the third recession since 2007. While the economy is forecast to grow 0.75 percent this year and 1.25 percent in 2015, unemployment is predicted to decline gradually to 7 percent in 2015 from 7.25 percent this year, the Central Planning Bureau said March 18. -By Fred Pals U.S. Mortgage Rates Fall With 30-Year Average at 4.34% Source: Bloomberg / Luxury Mortgage rates in the U.S. fell for the first time in three weeks, Freddie Mac said today. The average rate for a 30-year fixed loan was 4.34 percent this week, down from 4.41 percent. The average 15-year rate dropped to 3.38 percent from 3.47 percent, the McLean, Virginia-based mortgage-finance company said in a statement. -By Christine Maurus http://www.bloomberg.com/news/2014-04-10/u-s-mortgage-rates-fall-with-30-year-average-at-4-34-.html Chinese Tycoon Rides Resort’s Rise to Empire in the Sky Source: Bloomberg / Luxury Twenty years ago, Chen Feng used to push the refreshment trolley up and down the aisle of the lone Boeing 737 that comprised his startup airline. Today, based on the tropical Chinese island of Hainan, he controls a fleet of 483 planes -- and has a jet of his own, a Gulfstream G550, Bloomberg Markets magazine will report in its May issue. Even so, Chen, a devout Buddhist, says he’s far from the stereotypical Chinese tycoon. “I live a simple life,” he says. As he sips a caffe latte in the lounge of the chaletlike Sheraton Davos Waldhuus Hotel in Davos, Switzerland, his words jar with the setting: At January’s World Economic Forum, he’s surrounded by other corporate titans. “I don’t drink, smoke, have banquets, go to karaoke or get massages,” he says. “I’m different from the other entrepreneurs in China.” Where Chen, 60, is more like them is in his vaulting global ambition. In 1995, Chen flew to New York and persuaded George Soros to invest $25 million in his fledgling Hainan Airlines Co. (600221) Since then, backed by the Soros imprimatur, he has ridden the boom that transformed balmy, coconut palm–fringed Hainan, 2,500 kilometers (1,550 miles) south of Beijing, from a backwater into a billionaires’ playground reminiscent of a Chinese Hawaii or Riviera. $58 Billion EmpireFrom his Buddha-shaped, 31-story headquarters in Hainan’s increasingly high-rise capital, Haikou, Chen now chairs HNA Group Co., a closely held global transportation, logistics, retail, property, tourism and financial services empire that reported revenue of $17.5 billion and pretax profits of $837 million for 2012. Among its $58 billion worth of assets: a New York office tower, a Spanish hotel group, a French airline and controlling stakes in 10 companies listed on mainland Chinese and Hong Kong exchanges.  “Chen’s smart, brave and a gambler,” says Albert Louie, founder of Hong Kong–based consulting firm A. Louie Associates Ltd., who advises foreign investors in China. “He’s also politically well connected, and unlike China’s Internet entrepreneurs, he isn’t in industries that the government might consider threatening to Communist Party control.” Chen has spent more than $3 billion on foreign acquisitions in the past six years alone. His biggest bet was the $1.05 billion purchase in 2011 of GE SeaCo, the world’s fifth-biggest container-leasing company, from General Electric Co. ‘World-Class Companies’Such deals would make HNA Group, if publicly traded, one of the world’s top 250 companies by assets, according to data compiled by Bloomberg. The founder, though, has much loftier goals. “By 2020, we can become one of the top 100 companies, and by 2030, we want to be one of the top 50,” Chen says. “Assets are still cheap in the U.S. and Europe, and we will continue to acquire them. We need a batch of world-class companies to emerge from China to help the country’s growth, and HNA will be one of those. We want to be everywhere.” That’s a familiar refrain among China’s entrepreneurs. Since the global financial crisis ravaged the rest of the world in 2008, Chinese companies have made about $360 billion worth of foreign acquisitions, according to Bloomberg. Next DealAnd, increasingly, private businessmen such as Chen are replacing state-owned enterprises as leaders of China Inc.’s global push, says Thilo Haneman, head of the cross-border practice at New York–based research firm Rhodium Group LLC. “What’s going on is remarkable,” Haneman says. “It’s similar to what we saw from Japan 20 years ago.” Chen shouldn’t be short of cash for his next deal. At the end of 2012, HNA had $60 billion in credit lines from Chinese banks, according to its latest financial statements. Chen says he plans to raise additional capital by selling shares in several HNA units that are unlisted. In coming months, Chen says, he will announce the initial public offering of Hong Kong Airlines Ltd., the second-biggest carrier in the former British colony. He acquired the airline in 2006. The listing may raise about $1 billion later this year, according to a person with knowledge of the plan. For now, the jewel in HNA’s crown remains Shanghai-listed Hainan Airlines, Chen’s biggest public company, with a market value of $3.6 billion as of yesterday. Together with five smaller affiliate airlines, it has a 15 percent share in the China market, according to the Sydney-based CAPA Centre for Aviation. Market ShareOnly the so-called Big Three state-owned carriers -- Air China Ltd. (753), China Southern Airlines Co. and China Eastern Airlines Corp. -- have larger shares in the world’s second-largest aviation market after the U.S. Hainan Airlines’ 23 international destinations include Chicago, Seattle and Toronto. Later this year, Chen will add a Boston service using Boeing 787 Dreamliners. That shows his determination to gain market share on China–North America routes now dominated by Air China and United Continental Holdings Inc., says Will Horton, a Hong Kong–based CAPA analyst. “Hainan is leaner and more internationally minded than the Big Three,” Horton says. “It can become a serious player to North America.” Crash-Free RecordThe airline’s key selling points include a crash-free record; doting, glamorously garbed flight attendants; and flat-bed business-class seats that made it the first Chinese airline to win five stars from London-based rating agency Skytrax. “Hainan is one of my favorite airlines,” says Allan Zeman, 65, a director of Las Vegas–based Wynn Resorts Ltd., whose private company, Lan Kwai Fong Holdings Ltd., has investments across China. “The first-class service is excellent, and the airplanes are relatively new.” Many of Chen’s shareholders have had a less enjoyable ride. Since 2009, the Shanghai Stock Exchange Composite Index has been the eighth-worst performer out of 93 tracked by Bloomberg. And in the 12 months ended yesterday, Hainan Airlines’ shares have declined 17 percent compared with the index’s 4 percent tumble. Share SwapTwo of Chen’s other seven companies listed in Shanghai and Shenzhen have also fallen. In contrast, the unit into which Chen injected his GE SeaCo acquisition, Bohai Leasing Co. (000415), has jumped 28 percent over the same period. In Hong Kong, shares in Hainan Meilan International Airport Co. (357) -- owner of Haikou’s airport -- have risen 17 percent, mirroring the increase in the Hang Seng Index. Chen’s most famous backer, Soros, is one investor showing a paper profit, according to data compiled by Bloomberg. In 2005, Soros doubled his bet on Hainan Airlines to $50 million. As of yesterday, following a share swap, he owned 10 percent of an unlisted HNA unit, Grand China Air, which in turn owned 30 percent of Hainan Airlines. As of yesterday, that holding, equivalent to 3 percent of the carrier, was worth about $110 million. Soros, through a spokesman, Michael Vachon, declined to comment. Even as he launches more public companies, Chen continues to control his empire through an unlisted holding company that isn’t required to disclose its complete balance sheet or the identities of its main shareholders. One key item HNA does not release is its net profit. Chen says that last year he and six other directors, who between them owned almost all of the stock, donated 20 percent of HNA’s shares, worth $1.4 billion, to what he describes as a private-equity fund for charity. ‘My Idol’The fund, named Ci Hang after a Chinese goddess, is HNA’s largest shareholder, he says. He says he ranks as the joint second-biggest shareholder, although he declines to reveal the size of his personal holding, making it impossible to determine how rich he is. Given Chen’s calculation of the value of the donation, HNA is worth $7 billion. “Chen Feng is my idol, but I don’t understand his company’s structure -- none of us can understand,” says Wang Dafu, 48, a Cohiba cigar–chomping property developer worth $1.2 billion as of yesterday, according to the Bloomberg Billionaires Index. Wang heads Visun Group and serves as Chen’s deputy chairman at the Hainan Federation of Industry and Commerce. Although Chen is under no obligation to disclose more than he has about the workings of his private company, investors in Hong Kong Airlines’ IPO should expect HNA’s ownership to be more transparent, says Ronald Wan, who helps manage $200 million at Hong Kong–based Asian Capital Holdings Ltd. Cultural Revolution“Hainan Airlines has a competitive edge, and people always talk about the Soros investment,” Wan says. “But when you invest in Chinese companies, you have to be clear about the shareholding.” Chen talks freely about how he navigated some of the most turbulent years in China’s recent history. Raised in Beijing as the son of middle-ranking Communist Party officials, Chen was forced to leave school in his early teens after the Cultural Revolution broke out in 1966. Unlike most young people who were ordered to labor in the fields, Chen was sent to work for the People’s Liberation Army Air Force in the Western province of Sichuan. When the turmoil ended in 1976, Chen parlayed that experience into a job in Beijing with the Civil Aviation Administration of China. In 1984, he won a scholarship -- one of only 20 offered in China, he says -- to study at an air-transportation school in Germany run by Deutsche Lufthansa AG. In 1989, he took a job at the World Bank’s loan office in Haikou. The following year, Hainan’s administration hired him to launch its first airline. Given just $1.4 million in government seed money, Chen raised a further $41 million from local investors before successfully wooing Soros. For the U.S. billionaire, $25 million was small change. For Chen, it meant much more. “Soros’ reputation helped our image,” he says. Perhaps even more helpful has been the surging development of Hainan, China’s smallest province, with a population of 9 million. In the past five years, the island’s economy has averaged 11.7 percent annual growth, compared with the national figure of 9.2 percent. Today, around the resort of Sanya, centuries-old fishing villages have been replaced by marinas packed with mega yachts. Luxury hotels line its sandy beaches, including what Marriott International Inc. says is its most profitable Ritz-Carlton–branded property. Last year, Tiger Woods and Rory McIlroy played Mission Hills Haikou, a $5.4 billion golf resort that boasts 10 courses. “Hainan was an absolute dump,” says Peter Churchouse, chairman of Hong Kong–based property investor Portwood Capital Ltd. “The word phenomenal would not overstate the extent of the change.” Rival CarriersNobody has been better placed to exploit that change than Chen. Last year, the number of visitors to Hainan jumped 11 percent to 37 million. And of those arriving by air, 44 percent flew in on his planes, HNA says. Chen even profited from those who traveled on rival carriers because he owns both of Hainan’s airports, as well as hotels and travel agencies in the province. HNA is also the biggest property developer in Haikou. “It’s impossible to visit Hainan and not put a yuan in Chen’s pocket,” consultant Louie says. In 2006, having already expanded across mainland China, Chen turned to Hong Kong, acquiring, for an undisclosed price, Hong Kong Airlines and a second carrier, Hong Kong Express Airways Ltd., which he subsequently rebranded as a low-cost airline. Chen’s BetsIn 2011 and 2012 came a flurry of Western acquisitions, including GE SeaCo. HNA paid $259 million for a foreclosure-threatened Manhattan office tower, 1180 Sixth Ave., and $126 million for Cassa Hotel New York near Rockefeller Center. He bought 24 percent of Spain’s biggest business hotel chain, NH Hoteles SA (NHH), for 286.6 million euros ($397.6 million) and 48 percent of France’s No. 2 airline, Aigle Azur Transports Aeriens SAS, for 51.8 million euros. Not all of Chen’s bets have been winners. In 2012, Hong Kong Airlines abandoned an all-business-class service between Hong Kong and London as corporate travel slowed. Expansion into shipping coincided with a collapse in freight rates. Last year, an HNA-owned cruise liner carrying 2,300 passengers and crew was detained in South Korea, after another Chinese company obtained a court order over $58 million it said it was owed for unpaid charter fees and ship broker commissions. HNA, while denying liability, issued a public apology to stranded passengers. Rigorously PrivateAsked about the company’s financial strength, Chen says HNA’s debt-to-equity ratio declined to 0.79:1 in 2012 from 0.81:1 in 2009. “People don’t understand that our industry always has high debt levels,” he says. Chen’s ambitions don’t end with making HNA a global top 50 company. He has another grand plan. Chen is rigorously private about his immediate family, except to say, “It’s not good for your children to have such wealth.” Having already donated 20 percent of HNA shares to charity, Chen says he and his partners aim to make arrangements to do the same with the rest of their stock after their deaths. Given that Chen values the remainder of HNA’s shares at $5.6 billion, his last deal could well be his biggest. -By William Mellor and Jasmine Wang NYC’s Most Affordable Offices Being Depleted, Broker Says Source: Bloomberg / News The surge of office demand from New York’s technology, media and fashion companies is rapidly depleting the supply of affordable space in the city, especially in lower Manhattan, according to brokerage Studley Inc. Downtown had 4.3 million square feet (399,000 square meters) of available Class B offices at the end of last month, 45 percent less than in 2011, Studley said in a report posted on its website today. The market’s lower rents are being taken advantage of by a wide range of cost-conscious tenants, including engineers and architects, advertising, schools and health care, Studley executives said. While lower Manhattan’s smaller and older office buildings are filling up, the area’s supply of the highest-quality, most-expensive space has been growing, with the opening of new skyscrapers at the World Trade Center site. As the downtown market gets tighter, tenants are going to have to reach deeper into their pockets for some of that real estate, said Heidi Learner, Studley’s chief economist. “The early-bird tenants have largely taken the best stock” of Class B and C offices, she said in an interview. Latecomers “are going to be forced to go into a little higher-quality space and pay up for it, while realizing that what they’re paying is still significantly less than what they’d be paying in either Midtown or midtown south.” Downtown has about 8.7 million square feet of unrented Class A space, including 4.4 million square feet added in the three years through March, according to Studley. That includes offices in the new 4 World Trade Center and the almost-completed 1 World Trade Center, the Western Hemisphere’s tallest building. The market has a total of 95 million square feet of offices. Biggest YearLeases were signed for about 10 million square feet of downtown space in the year through March, the biggest four-quarter tally since 2000, the firm said. The surge was driven largely by creative companies, many of them looking for better rents than they can get in the converted factories of midtown south, where demand has pushed costs out of reach for some smaller firms. A report published in December by New York City’s Economic Development Corp. said the need for Class B and C buildings, critical to companies that have grown out of their startup phase, will exceed the supply starting in 2018. That’s due to the expected expansion of such companies and conversions of old buildings to residences, typically the most lucrative property type for developers. Funkier Spaces“If we really want to help these businesses grow, we need to really use our resources and some of the tools in our toolbox, whether it’s zoning or tax incentives to encourage the preservation of existing B-space or funkier spaces that these companies want to be in,” Alicia Glen, New York’s deputy mayor for housing and economic development, told reporters last week after a speech to the Association for a Better New York. She advocates encouraging commercial and manufacturing zones outside of the city’s central business districts. “We actively want to see mixed-use communities,” Glen said. While the administration of Mayor Bill de Blasio has made creation of more affordable housing one of its top priorities, it also plans to “take a fresh look” at the need for less-costly offices in all five boroughs, Kyle Kimball, president of the Economic Development Corp., said in an e-mail last month. Higher RentsState economic incentives, implemented after the Sept. 11, 2001, attacks to encourage companies to move to lower Manhattan, were renewed in the new state budget, Learner said. That should soften the blow of higher rents, she said. The availability rate of Class B and C offices downtown fell to 8.7 percent at the end of the first quarter, compared with the 15.2 percent rate of early 2011, according to a draft of a separate report by Studley. Space priced at less than $40 a square foot was depleted by the middle of last year, prompting tenants to look at buildings formerly dominated by financial companies along Water Street on the east side. Among companies taking advantage of downtown’s lower costs was MacMillan Publishers Ltd.’s science and education unit, which in the quarter took about 176,000 square feet at 1 New York Plaza, a 50-story tower near the foot of Manhattan owned by Brookfield Office Properties Inc. (BPO) Similar-quality space downtown costs about $20 less per square foot than in Midtown, said Steve Coutts, senior vice president for research at Studley. Asking rents in lower Manhattan averaged $49.12 a square foot at the end of the quarter, a 22 percent jump from a year earlier, according to data published yesterday by brokerage Cushman & Wakefield Inc. Office rents in midtown south averaged $60.02 a square foot, a 15 percent increase. In Midtown, the largest and most expensive U.S. office market, the average was $70.06 a square foot, up 6 percent. Tightening MarketLeasing throughout Manhattan is accelerating even as banks and other large financial companies scale back, said Donald Noland, managing director of research at Cushman. The roughly 9.4 million square feet leased in the first quarter was the highest three-month total in 10 years, he said. While tenants still have choices, the market is more likely to be tighter than looser over the next six months, Noland said. One question is whether the trend will help fill vacancies at the World Trade Center, where 2.4 million square feet remain available in towers 1 and 4. Two 2 million square feet more may be added if 3 World Trade Center is built. The planned tower, where advertising firm GroupM Inc. has agreed to take 500,000 square feet, is the subject of financing negotiations between developer Larry Silverstein and the Port Authority of New York and New Jersey, which owns the 16-acre (6.5-hectare) site. One World Trade Center is seeing “considerable interest” from media, technology, fashion and financial services companies, according to Eric Engelhardt, who oversees leasing for the Durst Organization, the Port Authority’s development partner on the tower. Conde Nast Publications Inc. will be the anchor tenant, with 1.2 million square feet of space. -By David M. Levitt Brooklyn Apartment Rents Jump to a Record as Leases Surge Source: Bloomberg / Personal Finance Brooklyn apartment rents rose to a record in March and new leases more than doubled, extending a surge in housing demand in the New York borough that was once seen as a refuge from Manhattan’s high costs. The median monthly rent was $2,900, up 13 percent from a year earlier and the highest since appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate began tracking the market in January 2008. The number of new leases surged to 854 from 311 in March 2013, the firms said in a report today. Brooklyn, the most populous of New York’s five boroughs, has become a magnet for the young and affluent, who are drawn to its gentrifying neighborhoods. Last month’s median rent was $300 cheaper than Manhattan’s, compared with an average spread of about $1,100 in 2008, according to Miller Samuel and Douglas Elliman. Rental demand is also surging as the number of homes for sale in the borough tumbled to a six-year low. “Brooklyn is on everybody’s radar, and whatever type of housing you’re in the market for, there isn’t enough of it,”Jonathan Miller, president of New York-based Miller Samuel, said in an interview. “Both the for-sale and rental markets are at or near record levels, and there’s a chronic lack of supply.” Rental prices were up across all size categories in March. Apartments with three or more bedrooms had the biggest increase, rising 27 percent from a year earlier to a median of $4,450, Miller Samuel and Douglas Elliman said. The median rent for one-bedroom units was $2,747, up 16 percent. Manhattan RentsAcross the East River in Manhattan, the median monthly apartment rent was $3,200 in March, up 0.2 percent from a year earlier, according to Miller Samuel and Douglas Elliman. It was the first month without a year-over-year decline since August. Brooklyn is adding residents and jobs at a faster pace than any other New York borough, sparking a boom in commercial development. Private-sector jobs in Brooklyn jumped 26 percent in the decade through 2013, Labor Department data show. In Manhattan, the increase was 13 percent for the period. “Brooklyn is standing on its own and isn’t overshadowed by Manhattan as a destination,” Miller said. Home sales in Brooklyn fell 2.2 percent in the first quarter from a year earlier as inventory shrank, while the median price climbed 1 percent to $520,000, Miller Samuel and Douglas Elliman said today in a separate report. The number of listings dropped 13 percent to 4,092 properties. Homes spent 131 days on the market, down from 160 days in the first quarter of 2013, the firms said. Multiple BidsFrancis Bradley and his wife, Jessica Athens, are trading their three-bedroom Park Slope co-op for a bigger place in gentrifying Bushwick. They received multiple bids for the Park Slope apartment, which they purchased for $770,000 in December 2012 and spent $75,000 renovating. It was on the market for less than two weeks when the couple had a contract to sell it for $999,999, Bradley said. As buyers, their experience didn’t go as smoothly. They bid on seven properties, sometimes losing out to people paying all cash, before securing a two-family home in Bushwick for $899,000, Bradley said. The couple, who have a 3-year-old daughter, intend to rent out the garden-level apartment. The family will live in the top two floors, which have six bedrooms, including one where Bradley, 37, hopes to host jazz concerts. More Space“Bushwick is up for sale at the moment,” said Bradley, an assistant professor at Brooklyn’s Pratt Institute. “We wanted to get in on that because there’s more space. And given the price, it’s still relatively affordable compared to Park Slope.” Bradley’s agent, Scott Klein, a broker with the Klein Zelermyer-Diaz Team at Douglas Elliman, said demand for Brooklyn homes remained strong, even with the harsh winter weather. Bradley’s open house attracted about 25 would-be buyers in January, he said. “There’s not a lot of sales inventory, but there are a lot of people with money,” Klein said. In the area that includes Bushwick, the median sale price for multifamily townhouses was $935,000 in the first quarter, up 31 percent from a year earlier, according to a report today by Corcoran Group. The median price of condos in the Fort Greene, Clinton Hill and Prospect Heights neighborhoods was $740,000, up 30 percent from the first quarter of 2013 and the highest in five years of record-keeping, the brokerage said. -By Prashant Gopal U.K. House-Price Growth Quickens as Home Shortage Boosts Values Source: Bloomberg / Luxury U.K. house-price growth accelerated in March and a shortage of homes for sale will put further upward pressure on values, according to the Royal Institution of Chartered Surveyors. A gauge of prices rose to 57 from a revised 47 the previous month, RICS said in a statement in London today, citing a poll of property surveyors. All areas tracked by the trade body saw buyer enquiries increase, apart from Wales. The report shows signs of strength in U.K. housing after mortgage approvals fell in February when heavy rainfall deterred house hunters. While activity is improving, with property sales at a six-year high in the first quarter, the overall market is being hampered by the lack of properties for sale, RICS said. “It is a major concern that we are not seeing enough houses coming onto the market,” said Simon Rubinsohn, chief economist at RICS. “Until this happens we’re likely to see prices to continue to increase and it is going to be ever harder for many first-time buyers.” The RICS index showed house prices have now been rising for the longest period since the 2008 financial crisis. The biggest increases last month were recorded in London and south east England. The group also said new instructions from sellers fell as the seasonal spring upturn failed to materialize. “With no indication that the imbalance between buyer demand and homes on the market is going to change any time soon, surveyors expected prices to continue to increase,” RICS said. The outlook for prices over the next three and 12 months were “broadly unchanged” from February, according to RICS. Surveyors see values rising about 6 percent a year over the next five years, it said. A broadening economic recovery, government incentives and record-low interest rates have fueled property demand after the financial crisis caused banks to curtail lending. The pace has prompted Bank of England officials to say they’re monitoring for signs of overheating. BOE policy makers will probably leave their benchmark rate at 0.5 percent today, according to a survey of economists. -By Scott Hamilton |