The ink only dried on BlackRock’s acquisition of MGPA in October, but already part of the largest asset on the former Asia- and Europe-focused private equity real estate firm’s books has been put into play.
Last month, it emerged that BlackRock had sold the 305-room Westin hotel that occupies the upper levels of Asia Square Tower 2 in Singapore. That Westin is part of the two-tower, S$2.9 billion (€1.7 billion; $2.3 billion) Asia Square development, which accounts for half of MGPA Asia Fund III’s committed capital.
It comes as little surprise that a shift in ownership has attracted attention. Sure enough, news of the sale of the 305-room hotel for an estimated S$468 million to Japanese developer Daisho Group hit the Singaporean press. It also prompted PERE to ask John Saunders, BlackRock’s managing director for Asia, what selling 25 percent of Tower 2’s square footage means for the firm’s plans to sell the rest.
According to Saunders, the possibility of selling off the hotel but leaving the office element off the table always was an option. In Asia, it actually is common practice.
“Our view was, if you leave a hotel connected to the office and exit in a lump sum, that’s not necessarily the highest value [for the assets],” Saunders explained. “What tends to happen is you get investors that are more interested in the office component and just take the hotel as an add-on.”
While strata-selling hotels is not a common practice in the West, Asia has many large, mixed-used developments and buyers are accustomed to it. Indeed, experts such as Nick Crockett, executive director at CBRE’s capital advisory unit, said having a co-owner should not make a difference to institutional buyers in the future. Furthermore, it frees BlackRock and future investors from running the operating business of a hotel, he pointed out.
In the near term, though, BlackRock has no plans to exit the remainder of the Asia Square development. With both towers having completed construction and now 90 percent and 50 percent leased, the firm is focused on leasing and managing the asset, though Saunders said buyers for Singaporean office assets are not hard to come by, given the market’s limited supply.
According to research by Jones Lang LaSalle, however, the Singaporean office rental market is still down about 42 percent from its peak in 2008. MGPA bought the land under the Asia Square development at a historically high price, and one Singapore-based source speculated that BlackRock probably will be able to get just its principle equity back “with some little return” when the towers eventually are sold. “Singapore rents are not where they were last cycle, which [BlackRock] would have needed to blow the lights out,” he added.
Still, Saunders pointed out that the economic downturn brought an unexpected blessing: it dramatically reduced the cost of construction. Though he would not disclose return details, he added: “People would be very surprised to know the numbers. It’s a very solid performing asset.”