BlackRock’s Asia Square exit completes

CapitaLand Commercial Trust, Singaporean property conglomerate CapitaLand’s real estate investment trust (REIT), has agreed to acquire Asia Square Tower 2 from BlackRock’s Asia Property Fund III for a property value of S$2.09 billion ($1.5 billion; €1.3 billion). Including acquisition fee and transaction costs, the acquisition cost totals S$2.15 billion, according to an official statement.

“Maybe that is not suitable for private equity money as when you have to get out it can be difficult. It was a big bet.”

– Stuart Crow

For CapitaLand, the agreed value of S$2689 per square foot for Tower 2, which has a net lettable area of 778,719 square feet, reflects an initial net property income yield of 3.6 percent. In a media briefing earlier today, Lynette Leong, chief executive of CapitaLand Commercial Trust Management, said the purchase price is below other comparable buildings in the area. She further added that the valuation was also below property consultancy Knight Frank’s independent estimate that valued the asset at 2,710 per square foot.

“The addition of Asia Square Tower 2 is a strategic move that is in line with our portfolio reconstitution strategy to rejuvenate CCT’s portfolio with the addition of newer and higher yielding Grade A assets,” commented Soo Kok Leng, chairman of CCT. “One George Street (50 percent stake) and Wilkie Edge, which were divested at exit yields of 3.2 percent and 3.4 percent respectively are replaced with the acquisition of a higher yielding Asia Square Tower 2.”

Stuart Crow, head of Asia Pacific Capital Markets at JLL, which advised BlackRock, said the sales process generated a strong interest from major global investors.

With the sale of the 46-storey Tower 2, the New York asset manager has finally and fully exited from its landmark Asia Square development in Singapore after a long-drawn-out sales process. While The Westin Hotel located inside Tower 2 was sold to the Japanese developer Daisho Group back in 2014 for S$468 million, BlackRock first started marketing Tower 1 for sale in September, 2015. The transaction was completed in June last year when the Middle Eastern sovereign wealth fund Qatar Investment Authority agreed to purchase it for S$3.4 billion. CapitaLand was also one of the bidders for Tower 1 but it pulled out of negotiations in November.

Sources involved in the sales process have told PERE that as part of the deal QIA was given the first right of refusal to acquire Tower 2, which the investor chose not to use. One source, analysing the reason for this decision, said buying both towers would have meant a significant holding in one plot. “If you run a diversified strategy, you can argue that that would have been a big investment,” the source added.

The development of Asia Square became controversial back in 2008 when MGPA, the private equity real estate firm, now part of BlackRock, decided to use S$2.97 billion from its $3.9 billion third opportunistic vehicle to buy the land for the development of the two towers from the Singapore government, as PERE reported earlier.

Reflecting on the decision to buy two tower developments in one city, Crow said: “I don’t think the thesis was flawed. Singapore is a great spot to invest in, albeit it comes with volatility. But maybe that is not suitable for private equity money as when you have to get out it can be difficult. It was a big bet.”