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6th October 2014

Singapore Real Estate

Price of condo land in acquisition case comes under debate

At issue is the reasonable sum to be paid and fair market value

Source: Straits Times / Singapore

WHAT is a fair price for a slice of land in a condominium complex, used for 13 carpark spaces, an electrical substation, trees and drains, has come up for debate in a land acquisition dispute.

Residents of the high-end Thomson 800 condo opposite MacRitchie Reservoir argue that the 600.9 sq m sliver of land acquired by the Government is worth at least $5.8 million. But the Collector of Land Revenue is prepared to pay only about $615,000.

This would work out to about $925.28 per sq m, or $86 per sq ft, for the affected freehold land - a land price unheard of here, residents argue. 

The 10m-wide plot was acquired by the Government in 2011, as part of the construction of the North South Expressway Stage 1 from Admiralty Road to Toa Payoh Rise and redevelopment.

At issue in the case before the Appeals Board (Land Acquisition) is what makes for a reasonable sum to be paid and what makes for fair market value.

"We accept the space is lost but the issue is whether a different value can be given to a particular area, which is for a particular use when it was bought as part of a whole (in) the first place," said Thomson 800 resident Steven Sobak, 67, treasurer of the condo's management committee.

The 600.9 sq m plot below the road level adjoining Marymount Road forms 2.1 per cent of the 28,573 sq m of freehold land making up Thomson 800.

Completed in 1999, it is Hong Kong tycoon Li Ka Shing's maiden residential project in Singapore. There are a total of 390 units in a four-storey apartment block and three 20-storey blocks. Facilities include swimming pools, tennis courts and a clubhouse.

The Collector of Land Revenue awarded some $556,000, with an ex gratia payment of $58,380 as compensation in July 2012.

The Appeals Board, comprising Commissioner of Appeals Foo Tuat Yien, a senior district judge; Singapore Institute of Architects president Rita Soh, a Nominated Member of Parliament; and Associate Professor Sing Tien Foo from the department of real estate of the National University of Singapore, held hearings over three days in July.

Valuers from opposing sides had agreed that the market value, based on the residential zoning and plot ratio, was about $11 million but differed on the amount to be discounted and the adjustment factor to be applied to the market value.

Valuers for the authorities argued that the affected land is part of a road and green buffer zone, which meant its use was very limited and incapable of further residential or other redevelopment. This had to be factored to determine the market value.

The sum payable was worked out with the rent paid for a playing field in Upper Thomson Road as a benchmark.

But lawyers from Infinitus Law Corporation, representing Thomson 800 residents, questioned this. They suggested alternative ways with reference to Singapore Land Authority rates for "remnant land", or small plots of land left over after development.

Closing submissions were made last month by both parties to the Board and the outcome is pending.

-By K.C. Vijayan, Senior Law Correspondent

Global Economy & Global Real Estate

Hilton to Sell NYC’s Waldorf Astoria to Chinese Insurer for $1.95 Billion

Source: Bloomberg / Luxury

Hilton Worldwide Holdings Inc., the world’s largest publicly traded hotel operator, agreed to sell the landmark Waldorf Astoria hotel in Manhattan to China’s Anbang Insurance Group Co. for $1.95 billion.

Hilton will continue to manage the 1,232-room luxury hotel, which will undergo a major renovation, the McLean, Virginia-based company said in a statement today. It plans to use the proceeds from the sale to buy other U.S. properties.

The sale of the 83-year-old Art Deco building, which occupies an entire block on Park Avenue in midtown Manhattan, ends more than four decades of ownership by the company and expands a surge of Chinese investment in New York real estate. The transaction is the largest ever for a U.S. hotel, according to research firm Lodging Econometrics.

“There really are no other sales to compare it to,” said Bruce Ford, senior vice president and director of global business development at Lodging Econometrics, based in Portsmouth, New Hampshire. “It is the most unique asset with the most unique location in the world.”

Hilton Chief Executive Officer Christopher Nassetta said in a February interview that the company may sell all or a part of the property as it considers other uses for the building. The company, majority owned by Blackstone Group LP, in December raised $2.35 billion in a record initial public offering for the hotel industry.

Hilton had been working with Eastdil Secured LLC to market the Waldorf. The hotel company was approached by Anbang and two other potential buyers before the property was officially up for sale, according to a person with knowledge of the process.

Hotel History

The Waldorf Astoria opened in 1931 as the tallest and largest hotel in the world, according to its website. Hilton founder Conrad Hilton gained the management rights in 1949, while Hilton Hotel Corp. purchased the property in 1972, according to the Waldorf’s website.

The hotel’s redevelopment potential makes it an attractive investment, Ford said. The property is in need of an upgrade, said Nikhil Bhalla, an analyst at FBR & Co. in Arlington, Virginia.

“This is a hotel that would have required a phenomenal amount of capital expenditure to restore it to its luxury roots,” he said. “It’s not clear that would have yielded good results in terms of rate growth at this hotel.”

Renovation Costs

Hilton decided it was better to sell than take on the cost of renovations, said the person with knowledge of the transaction, who asked not to be identified because the details were private. The company plans to buy other hotel assets with a higher cash flow than the Waldorf under a provision of the U.S. tax code that allows sellers to defer levies if they recycle proceeds into an equivalent property within 180 days of the sale’s closing, the person said.

Hilton shares fell 0.5 percent to $24.21. They have gained 21 percent since the IPO.

Peter Rose, a spokesman for New York-based Blackstone, declined to comment on the Waldorf deal. Aaron Radelet, a Hilton spokesman, declined to provide more details.

Manhattan real estate values have jumped as investors from around the world seek yield and relatively safe investments. Beijing-based Anbang, founded in 2004, provides financial and insurance services to more than 20 million customers, according to the statement.

Chinese Buyers

Other prominent real estate deals by Chinese buyers include the purchase last year of a stake in midtown Manhattan’s General Motors Building by Zhang Xin, the billionaire co-founder of Soho China Ltd, and Fosun International Ltd.’s purchase of 1 Chase Manhattan Plaza from JPMorgan Chase & Co. Greenland Holding Group Co., a Shanghai-based, state-owned developer, acquired a 70 percent share of the Atlantic Yards project in Brooklyn.

The China Insurance Regulatory Commission in 2012 issued rules allowing the nation’s insurers to invest more in commercial real estate in the main cities of developed nations. In February of this year, it capped “real estate category assets” at 30 percent of investments.

Anbang in 2013 passed on buying Hong Kong’s Wing Hang Bank Ltd., which was eventually purchased by Singapore’s Oversea-Chinese Banking Corp., and instead has accumulated a 9 percent stake in China Merchants Bank Co.’s Shanghai-listed shares, according to data compiled by Bloomberg.

Hotel Sales

The Waldorf Astoria sale adds to at least 12 other luxury hotel transactions in Manhattan since 2006, according to STR Inc., a Hendersonville, Tennessee-based research firm. They include Hyatt Hotels Corp.’s $390 million purchase of the 210-room Park Hyatt New York in August and the sale last year of the Helmsley Park Lane Hotel on Central Park South to investors led by the Witkoff Group for about $660 million.

U.S. insurers also have been looking to buy hotels. Allstate Corp. Chief Executive Officer Tom Wilson said in 2012 that his company was searching for investments in the industry as a way to diversify from bonds and protect his company as interest rates rise.

MetLife Inc. joined with Thayer Lodging Group to purchase the Ritz-Carlton San Francisco for about $161 million last year. The largest U.S. life insurer also has teamed with Loews Corp. to invest in its namesake brand of hotels.

-By Heather Perlberg and Nadja Brandt

Manulife to Build Montreal Tower Amid Standard Life Deal

Source: Bloomberg / News

Manulife Financial Corp. (MFC), Canada’s largest life insurer, agreed to help develop a 27-story tower in Montreal as the company expands in Quebec with the planned purchase of a unit from Standard Life Plc.

Manulife will occupy more than half the space of the new building, which will be developed with Ivanhoe Cambridge at 900 de Maisonneuve Boulevard West, the Toronto-based insurer said today in a statement. Financial terms weren’t disclosed.

“The addition of this world-class office tower in Montreal reinforces our commitment to growth in Quebec and complements our existing portfolio nicely,” Kevin Adolphe, chief executive officer of Manulife’s real estate unit, said in the statement.

Last month, Manulife agreed to buy competitor Standard Life Plc’s Canadian business. The C$4 billion ($3.6 billion) deal, Manulife’s second-largest acquisition, is a step toward gaining a bigger presence in Quebec.

Construction of the glass tower will begin as soon as the first quarter of 2015, following approval of the Standard Life transaction by shareholders and regulators, Manulife said. The insurer will lease at least 11 floors of the tower and relocate about 2,000 employees now housed in Manulife and Standard Life offices in downtown Montreal.

Ivanhoe Cambridge is the real estate arm of Montreal-based Caisse de Depot et Placement du Quebec, the country’s second-largest pension fund. Caisse de Depot helped fund Manulife’s Standard Life deal with a C$500 million investment.

-By Katia Dmitrieva

Battersea Owners Seek $790,000 for Studio Apartments

Source: Bloomberg / Luxury

More than 500 homes at London’s Battersea Power Station, designed by Gehry Partners LLP and Foster & Partners, will be offered for sale this month. Prices start at 495,000 pounds ($790,000) for a studio apartment.

Battersea Power Station Development Co., owned by Malaysian companies including SP Setia Bhd. and Sime Darby Bhd., will eventually build more than 1,300 homes designed by the architects close to the defunct power plant, where part of The Dark Knight movie was filmed. Two-bedroom apartments in the new development phase are priced from 1.2 million pounds and four-bedroom homes will cost at least 3.2 million pounds.

The owners of the site on the River Thames are trying to turn the district into a prime address. London home values fell month-on-month for the first time in two years in September and further “modest” declines are likely as demand for housing slows, according to researcher Hometrack Ltd.

This is an “opportunity to be right above London’s newest pedestrianized high street and at the impressive gateway to the power station,” Rob Tincknell, chief executive officer of the developer, said in a statement. “The designs from Foster & Partners and Gehry Partners are unique.”

-By Neil Callanan

‘Champagne Fizz’ Goes Flat for London Homes: Real Estate

Source: Bloomberg / Luxury

Twenty one cranes loom over the south bank of the River Thames from Battersea Power Station to the St. George Wharf tower. Here, in the biggest concentration of residential projects in London, developers are steaming ahead just as prices are starting to fall.

Homebuilding in central London doubled in two years as record-low interest rates and demand from overseas buyers drove up values at a pace not seen since 1987. Developers such as China’s Dalian Wanda Group and U.K.-based Berkeley Group Holdings Plc (BKG) were drawn to the Nine Elms district, where Malaysia’s Sime Darby Bhd. (SIME) is redeveloping the Battersea station as part of a plan to turn the neighborhood into a prime address.

As the apartment towers rise, the price increases that underpinned the construction boom have come to a halt. London home values fell month-on-month for the first time in two years in September, according to Hometrack, and developers such as Killian Hurley, chief executive officer of London-based Mount Anvil Group Ltd., don’t see a return to red-hot growth soon.

“Over the summer months, the champagne fizz went out of the market,” said Hurley, whose company plans to develop London homes worth 1 billion pounds ($1.6 billion) by 2018. “The madness has gone out of it, so it’s a lot more sustainable. People are becoming more discerning.”

Expectations Dive

Expectations for home price growth in the capital are falling at the fastest pace since before the financial crisis, a survey by the Royal Institution of Chartered Surveyors showed. Values rose in 1 percent of London postcodes in September, compared with 87 percent in February, Hometrack said Sept. 26. Further “modest” declines are likely, the research firm said.

Though prices climbed for most of this year, the pillars supporting the London market -- a cheap pound, record-low interest rates and the city’s reputation as a haven for foreign buyers -- have been eroding for months.

U.K. financial officials damped domestic demand for homes by tightening affordability checks and restricting the number of high loan-to-income mortgages. Speculation about when the Bank of England will raise the benchmark interest rate from a record low of 0.5 percent is also causing uncertainty in the market. BOE policymakers, meeting this week, have been split over whether to keep the rate at that level.

Overseas buyers have seen prices rise because of a strengthening pound, as well as new levies such as a capital-gains tax on homes sold by people living abroad. They’re also wary of the opposition Labour Party’s plan to raise 1.2 billion pounds from a “mansion tax” if it gets into power after next year’s national election.

Stock Pressure

The Bloomberg U.K. Homebuilders Index is little changed this year, compared with a 37 percent gain in the same 10 months of 2013. Berkeley, which focuses on London and southeast England, is the worst performer in the 10-stock index, with a 15.8 percent decline this year. Sime Darby fell 4.6 percent this year in Kuala Lumpur, where it’s based.

Shares in Telford Homes Plc (TEF), the London-focused home builder, fell as much as 1.9 percent in the capital, the most since Sept. 26. The shares were down 0.4 percent at 340 pence at 11:11 a.m. Berkeley was 0.3 percent lower at 2,237 pence.

The proposed mansion tax, which would disproportionately affect London, already is reducing demand for homes, according to broker Knight Frank LLP. The central boroughs of Westminster and Kensington and Chelsea contain 46 percent of homes valued at 2 million pounds or more in all of England and Wales, it said in an Oct. 2 statement.

London values will gain 5 percent next year and remain little changed in 2016, Savills Plc said in an Aug. 26 report. Prices will rise 15 percent this year, the company predicted.

Limited Supply

“The dip in London house prices is unlikely to mark the start of a sharp decline, as growing employment and the lack of housing supply keep values close to record highs,” Bloomberg economist Niraj Shah wrote in a Sept. 29 report.

U.K. home values are set for a 0.8 percent decline in 2015, led by London, as demand is stifled by high prices, larger deposit requirements and concerns about mortgage-payment increases, the Centre for Economics and Business Research said today. Values in the U.K. capital will fall 2.6 percent next year, the first decline since 2009, CEBR said in a statement.

There are now 22,000 central London homes under construction in London, according to Chicago-based broker Jones Lang LaSalle Inc. The number of new homes sold in core locations fell 33 percent in the first half of 2014 from a year earlier, Jones Lang said last month. The broker defines core as Kensington to Canary Wharf on the north side of the Thames and from Nine Elms to Waterloo on the south.

New home sales in the outer core, which includes districts like Fulham, Hackney and Greenwich, rose 31 percent to 4,800 in the same period, the broker said.

Inferior Units

“Do not expect to see the aggressive growth that we’ve seen in the past three years,” said Alexander Lewis, a partner at Knight Frank. “Supply is increasing, so there will be more choice and I do believe that the inferior units will suffer.”

Many of the developers are targeting overseas buyers at the luxury end of the market, where rising supply has already reduced the premium paid for new apartments over existing ones to 43.1 percent at the end of the first quarter from 67.6 percent in 2012, London-based broker Huntly Hooper Ltd. said in September. Consulting firm EC Harris LLP defines luxury homes as those that will sell for 1,250 pounds a square foot or more.

“If you have a well-priced scheme in a good location, you will still sell it overseas,” said Hurley at Mount Anvil, which is developing apartments 3.5 miles west of Nine Elms. “A few months ago, it could have been overpriced and it was still selling.”

Unattractive Prices

Most domestic buyers can’t afford or don’t want apartments that cost more than 1,000 pounds a square foot, JPMorgan Chase & Co. analysts including Tim Leckie wrote in an Sept. 5 note to clients. At that rate, an owner of a 700 square-foot (65 square-meter) apartment would need a salary of 130,000 pounds to pay the bills, they estimated. The average London home sells for 367 pounds a square foot, Halifax said in June.

“By the time your London executive reaches this pay bracket, they are looking for more than 700 square feet in a high-density development,” the JPMorgan analysts wrote. “As you tick up the luxury price ladder, the story looks ever worse.”

Values in Nine Elms have risen about 33 percent in three years to 1,200 pounds a square foot, with some homes priced at 2,000 pounds, Jones Lang said in the September report. The district leads the city in homebuilding, according to Mark Farmer, who advises residential property developers for EC Harris.

Building Boom

London Mayor Boris Johnson has set a target of building 42,000 homes a year, according to a draft local government development plan. More than 1,200 are under construction in the South Bank neighborhood and Carlyle Group LP, the second-biggest private-equity firm by assets, has approval to build 489. Canary Wharf Group Plc won permission to build more than 3,000 homes at its Wood Wharf land plot adjacent to the east London financial district. Berkeley is considering the development of 6,000 homes at Kidbrooke Village three miles to the southeast.

A Berkeley representative declined to comment on the slowing London market. No one at Battersea Power Station Development Co., owned by Malaysian companies including Sime Darby and SP Setia Bhd., was available for comment.

As price expectations dim, building costs are rising. Many investors are now spending more than 50 percent of a central London project’s value on land, Jones Lang director Will Grant wrote in the report. Residential land values in central London rose almost 19 percent in the first half, more than double the gain for homes in the same 13 districts in the period, according to Knight Frank.

‘Hope Value’

That’s causing unease among developers, said Farmer at EC Harris. Some clients are saying the costs reflect “hope value” of further increases “which is always a dangerous thing, especially, when build-cost inflation is starting to become a real issue in eroding planned returns,” Farmer said.

Profit from a development is usually 15 percent to 25 percent of the completed project’s value, so an increase in construction costs or a drop in prices “can quickly eat into the planned margin,” he said. “There is definitely a nervousness about pricing and market sentiment.”

Investors from east and southeast Asia bought 29 percent of the new London apartments that Knight Frank sold in the year through September, according to the broker.

Developers should not assume demand from Southeast Asia for new homes in London will continue, Lewis at Knight Frank said. Projects without residential amenities “or community feel, geared purely at an international market of investors” will suffer when that market drops, he said.

“There is an increasing sophistication of the overseas buyer; it’s not just a one-way ticket, which is good,” said Hurley at Mount Anvil. “No serious developer likes to be involved in the boom and bust.”

-By Neil Callanan and Patrick Gower