BlackRock Real Estate, the real estate investment management business of global asset management giant BlackRock, has reduced the asking price for one of its biggest single properties for sale, in a sign that it is struggling to find a buyer.
PERE understands the firm reduced its asking price for the 1.285 million square foot office building in Singapore’s Marina Bay to between S$2,800 ($2,044; €1,793) and S$2,900 per square foot. The reduction is thought to have happened in the first quarter.
According to a May 2014 white paper sent to investors and seen by PERE, BlackRock originally targeted a sale at S$3,638 per square foot and so this adjusted price would reflect recouping between 20 percent and 23 percent less than its previous asking price.
When the white paper was issued, a sale would have seen BlackRock make S$4.68 billion, whereas a trade at the lower end of the current sale price spectrum would result in the firm recouping S$3.598 billion from its investment.
The outcome for Asia Square Tower 1, and for the second tower in BlackRock’s two-tower development scheme, Asia Square Tower 2, is significant as they represent the lion’s share of the gross asset value of BlackRock Real Estate Fund III, once Asia’s largest private equity real estate fund when it was closed on $3.9 billion of equity commitments in 2008.
The fund was originally raised by MGPA, an Asia and Europe-focused opportunity fund manager which was purchased by BlackRock in 2013. As such, the towers were a material consideration of the takeover.
They have a controversial history as MGPA acquired the two plots of land on which they stand using S$2.97 billion of equity to buy them, equating to more than half of the fund’s corpus. The site purchases were considered controversial as they meant the bulk of the equity raised for what was supposed to be a pan-Asia fund strategy had been invested in the development of one big development project in one market, bringing with it portfolio concentration risk.
Today, although the Asia Square offices are widely regarded as being among the best physical quality offices in Asia, worsening office leasing market conditions in Singapore and growing doubts over existing tenancies have led prospective investors to have concerns about buying the asset at even the reduced pricing.
Korea Investment Corporation, the Korean sovereign wealth fund, Singapore-based fund manager ARA Asset Management, Singapore-listed developer CapitaLand and Norway’s Norges Bank Investment Management have all been cited as potential bidders, but no sale has materialized.
BlackRock has declined to comment beyond the following statement: “Asia Square is a trophy grade-A office building in Singapore, often considered as one of Asia’s best such developments, and negotiations with potential buyers of this asset continue. While we are not in a position to comment on the details, we are pleased to have received significant global interest in this high-quality asset and are currently working to achieve the best outcome for our investors.”
Reacting to the news, one manager said: “I have not focused much on this deal given the earlier pricing indication. I may take another look if this pricing is true.” Another said: “It would have to be below S$2,300 for me to be interested.” Meanwhile, a third said that his firm’s pricing for the asset would be in the low S$2,000s. “The issue is we could build a brand new building for S$2,000 per square foot. The rough justice is that land costs S$1,200 and it would cost S$800 to develop it,” he said.