A joint venture between ARA Asset Management and Chelsfield Asia has purchased the Manulife Centre on Singapore’s Bras Basah Road for S$555.5 million ($408.8 million), according to statements released late Friday.
Singapore-based ARA and Chelsfield, the Asian arm of a UK developer, are buying the building, which is also known as 51 Bras Basah Road, with the aim of repositioning the 241,000 square foot (23,389 square metre) commercial property as “a new and unique office concept,” according to a statement from Chelsfield.
A joint venture between a unit of Singapore-listed developer City Developments Ltd (CDL) and a fund controlled by Keppel private equity affiliate Alpha Investment Partners is selling the 11-storey building at the fringe of the city’s urban core as Singapore’s office market continues to see an increase in office rents and capital values due to a scarcity of new projects in prime locations.
Chelsfield and ARA Team Up in Bras Basah
“51 Bras Basah Road is a prominent building in the Civic District in Singapore. Connected to two MRT stations and in close proximity to the CBD, the property is popular with companies seeking convenience and accessibility,” ARA Assistant Group CEO and CEO of ARA Private Funds Ng Beng Tiong said in a statement by the real estate investment manager. Ng added that, “we are confident that we will be able to enhance the property through asset enhancement and tenant repositioning, and value-adding to the investment.”
ARA is investing in the property, which has another 96 years to go on its leasehold, through one of its private funds, while Chelsfield is dipping into its Chelsfield Asia Fund 1 for the 50:50 joint venture. The sale price of the building was announced in a statement by CDL, and the acquisition values the property at $23,750.48 per square metre.
Manulife Centre is located where Bras Basah Road crosses Bencoolen Street about two kilometres north of Singapore’s financial district and is served by both the MRT Downtown and Circle lines. The property was acquired in 2015 by a joint venture between Alpha Asia Macro Trends Fund (AAMTF) II, which holds a 60 percent stake, and CDL, which holds 40 percent, for S$487.5 million.
In April the Singaporean duo had put the property up for sale via an expression of interest (EOI) by the owners, with Savills and JLL engaged as joint sole agents to market the property. In July of this year Chelsfield had locked into exclusive negotiations to buy the property from the CDL/Alpha joint venture, only to have it reported in September that ARA had begun its own talks with the property owners after Chelsfield’s original exclusivity period expired.
“With Singapore’s continued healthy office demand, this was a timely and well-executed divestment exercise for the vendors to maximise their returns,” Savills’ CEO for Southeast Asia Christopher J Marriott told Mingtiandi.
Aiming for the Flexible Office Market
ARA and Chelsfield’s acquisition hinges on the duo’s ability to effectively reposition the building when Manulife’s lease of nearly half of the space in the building expires in April of this year. The Toronto-based insurer had announced in April 2017 that it had acquired 8 Cross Street in Singapore for $526 million with that 28-storey building now designated as its headquarters in the city after having been renamed as the Manulife Tower.
The new owners’ goal is to transform the building, which has an average floorplate of 23,000 square feet and retail space on the first floor, into a shared office project, as the flexible space craze continues to grip the region.
“With the advent of the on-going co-working wave and the rise of millennial expectations for F&B and retail, we aim to deliver a new and unique office concept that leverages on the vibrancy of the neighborhood to appeal to both new-generation businesses and traditional corporate tenants,” Chelsfield Asia CEO Nick Loup said in a joint statement with ARA. Loup added that the partners expected that their redesign and management of the building would enable them to “raise the premium on rental income as well as asset value.”
Analysts have also speculated that Singapore’s recent reductions in parking requirements for commercial facilities would also allow the new owners of the property to repurpose part of the asset’s parking garage.
“The Bras Basah district is experiencing a lot of positive change with building upgrades, pedestrian, cyclist and MRT access improvements; so Manulife Centre presented a great opportunity for value-add investors to unlock both the building and the areas potential,” Savills’ Marriott noted.
Buying into an Office Upswing
If ARA and Chelsfield are able to achieve the level of office rents recently achieved in the nearby Orchard Road commercial district they could expect to rent out the property at approximately S$9.37 per square foot per month, according to figures from the third quarter of last year from Savills.
In their statement, ARA and Chelsfield indicated that they expect prime office rents in the city to rise at least 20 percent from 2018 to 2020, as Singapore faces a shortage of new commercial projects in the downtown area.
The government land sale program for 2019 which was released last month included no new commercial sites in downtown areas, with no major commercial plots having been sold in Singapore’s urban core since October 2017.
In a report released in November last year Savills noted that grade A office rents had grown 9.6 percent in Singapore over five successive quarters dating from the third quarter of 2017, with rates for prime offices having risen 4.3 percent in the three months ending September.
Chelsfield Expands into SG, Alpha Winds Up Fund
The acquisition is Chelsfield’s first ever in Singapore after the company had made a pair of acquisitions in Hong Kong.
In January the UK developer purchased a set of ground floor shops in The Galleria at 9 Queen’s Road in Central for a reported HK$900 million. That retail deal was reported just a few weeks after Chelsfield teamed with local Hong Kong real estate fund manager Pamfleet to buy a mall in Hong Kong’s North Point area from Li Ka-shing’s Fortune REIT for HK$2 billion.
For Alpha Investment Partners the disposal is the third asset sale in the past year from the company’s Alpha Asia Macro Trends Fund II which was established in 2013 and is currently said to be winding up.
In April of last year the fund sold the Shanghai International Plaza (盛邦国际大厦) commercial tower in Shanghai’s Hongkou district to LaSalle Investment Management, and then last month Alpha sold the fund’s 77.6 percent stake in the I12 Katong mall in Singapore to Keppel Group’s DC REIT for S$56.6 million.