ASIA VIEW: BlackRock’s Singapore sling

When one of the largest property exits in the region led by one of the world’s biggest asset managers is in motion, speculation is inevitable.

As at press time, there was no official word on the current status of the sale of Asia Square Tower 1, the recently developed office tower in Singapore’s Marina Bay, by New York-based asset management giant BlackRock Real Estate. With a number of bids secured, sources say the final curtain call could happen within the next two months.

The asking price for the 1.285 million square foot office is thought to be between S$3.5 billion (€2.2 billion; $2.4 billion) and S$4 billion, as per multiple media reports. That is around S$3,000 per square foot – a record price in Singapore if one analyzes landmark sales that have taken place in the city-state in the last two years.

Given the 89 percent occupation of the property and the broader supply and demand fundamentals in Singapore, the price appears ambitious. The tower houses major tenants including Citigroup, RBC and Kohlberg Kravis Roberts. But with pockets of vacancy anticipated to increase as office supply within the CBD and its fringes increases, there is cause for BlackRock to be nervous as prospective buyers assess the building’s near-term leaseability.

One incoming competitor is Marina One, a development featuring two 30-storey office towers and two residential blocks, by a joint partnership between Temasek Holdings and Malaysia’s sovereign wealth fund Khazanah Nasional Berhad. In anticipation of space like this entering the market, rents are already beginning to decline: a recent Savills report estimated average rents of CBD Grade A offices fell 2.1 percent in the Q2 this year.

Rising interest rates are also prompting concerns about the yield. As one broker explained, if only 3 percent to 4 percent is generated, it may not be attractive to buyers paying a commercial borrowing rate of almost close to 2.8 percent.
Perhaps cognizant of that, BlackRock has reduced its asking price from what was indicated last year. As reported earlier by PERE, the firm, in a note released to its investors, had said it was looking to get S$3,638 per square foot for Asia Square.

The basket of bidders for Asia Square is interesting. According to newswire Bloomberg, Norges Bank Investment Management (NBIM), the manager of the Norwegian Government Pension Fund Global, and the two Singapore-based real estate real estate firms CapitaLand and Keppel Land made offers. NBIM has long been seeking to make its first investment in the region, and Karsten Kallevig, its chief executive officer for real estate, is understood to have prioritized Singapore and Japan. For NBIM, having a landmark Grade A property in Singapore as its maiden buy could well justify the price tag. For the other two, the strategy appears less obvious. One source told PERE: “If they put in a lower bid thinking that they are not going to get much interest because of the size, then it is a different thing. But if they are planning to bid at market price, I can’t see the rationale. They would be better off trying to lobby for a piece of land and build on it.”

Both CapitaLand and Keppel Land operate real estate investment trusts (REITs) so they could also be eyeing the property with the intention of listing in on their REIT once they have stabilized it.

The price at which the property ultimately gets sold will, of course, impact the asking price for Asia Square Tower 2, which is due to come to market afterwards. The towers combined are reportedly understood to be valued at $7 billion. In media reports published in June, Greg Lapham, a real estate managing director at BlackRock, indicated the firm may look to sell them together.

I believe the prevailing wisdom within the market today is the firm would use the exit price of Tower 1 – the bigger among the two – as a benchmark for the next. It is worth noting too that a portion of Tower 2 was already exited in April this year when the 305-room Westin Hotel was acquired by the Japanese developer Daisho Group for S$468 million, although hotels trade on different basis’ to offices.

Whatever the final outcome, given the relevance of these towers to their fund, their manager and the market, just as they have been already, these towers will keep courting speculation until their sales have crystalized.