On the face of it, MGPA’s letting to Citibank at Asia Square Tower 1 in Singapore’s Marina Bay has done more than reaffirm the firm’s position that its S$2.97 billion (€2 billion; $2.27 billion) outlay for the land under the project is justified. It also has given the Asia and Europe-focused private equity real estate giant the confidence to break ground on Tower 2.
Speaking to PERE, Saunders admitted the project had received significant scrutiny “because these are big buildings,” but he added that these lettings should answer market concerns about filling them. “A lot of people have looked at this project and said, ‘That’s a lot of space. How successful will it be?’ But if you build the best quality building – and we unashamedly think we have – that will win-out.” Indeed, the office was pre-certificated platinum by LEED Rating Systems, the green building certification programme.
Design credentials aside, MGPA has come under fire for rental assumptions made when underwriting its investments in the land in 2007. One source said: “Rents at the time were S$16 to S$17 per square foot and predicted to reach S$20 a square foot by firms like Jones Lang LaSalle. That would justify the price paid, but headline rents today are at S$10 per square foot and that’s half.” The source predicted the project subsequently is not likely to “hit north of 10 percent IRR”.
Saunders would not confirm the rental price agreed with Citibank, which moves its 2,500-person staff from nearby offices at Centennial Tower and Millenia, where it occupied a combined 25 floors. But he said: “I’m very happy with the rents achieved, and I’m extremely happy with the covenants we’ve attracted. I also feel rents are likely to go up from this point because there’s virtually nothing in the way of supply coming through.”
According to Saunders, only two comparable office developments will be available to large tenants until 2016. As such, the firm intends to break ground on a second tower to comprise 780,000 square feet of office space shortly ahead of a mid-2014 completion.
Saunders also was confident about MGPA’s exit from the projects. Pointing to the nearby Marina Bay Financial Centre, one-third of which was sold by a development consortium consisting of Keppel Land, Cheung Kong Holdings and Hong Kong Land to ARA Trust Management’s Suntec REIT for $S1.5 billion at the end of October, he said he was happy with the valuations used in the deal. “The price of that sale makes me extremely comfortable about the price of Asia Towers 1 and 2,” he added.