MGPA’s Asia Property Fund III is the proud owner of a landmark piece of real estate. In six weeks time, construction firm Hyundai hands over the keys to Tower One of Asia Square in Singapore.

When the second tower of the project is finished in two years, investors should be sitting on a healthy return on their capital. The fund targets internal rates of return of 17-20%.

The 43-floor building is located in Singapore’s Marina Bay district and is the biggest Grade-A office building ever constructed in the city. It's already more than half leased, and their anchor tenant is US bank Citi, which is taking several of the 34,000 square foot floors and plans to move in during August. Joining Citi are Google, Bank Sarasin, Marsh & McLennan and Julius Baer.  

The project has spanned an entire economic cycle. It was initiated three years ago when MGPA bought plots of land at auction for approximately S$3 billion. First to be built is the 1.3 million square foot office building currently nearing completion, Asia Square Tower One, and construction has already begun on Tower Two next door, atop which will be the Westin Hotel. Between the two buildings will be a covered atrium under which sporting and other events can be held.

The total development cost is in the region of S$4.3 billion, and when finished it is likely to turn a tidy profit for MGPA investors. The project was being built during the global financial crisis and was a big concentration for fund investors, as half of the Asia Property Fund III was earmarked for this one project. MGPA put down half in equity and borrowed the other half from banks.

As the crisis unfolded, MGPA called a halt to new investments from its Fund III but pressed ahead with the Asia Square project. That act will reap an extra reward in 2013, because the second tower is the only Grade-A project in town slated to come on stream in that year.

By conserving its resources, the fund also has another $500 million in equity still to invest, and group CEO Simon Treacy envisages that this could possibly be spent in Japan and in pockets of opportunity still prevailing in China.

“All the development management for Asia Square was conducted in-house,” he says. “And I think that was the most important feature behind the accomplishment of this project because it enabled us to control the risks, find the best ways to add value and be able to produce an environmentally friendly top class Grade-A building.”

The building’s green credentials are illustrated by an installed device that captures the cooking oil from the food court in the building, and then reprocesses that into usable fuel.

MGPA is a developer and a fixer-upper of opportunistic real estate projects. So when finished it will be time to bid adieu to Asia Square and find an exit for the investors.

For a project as enormous as this, there aren’t a huge number of core property investors who could swallow it whole, so the exit is still under consideration. One solution may be establishing a Reit to accommodate the entire Asia Square development.

Other developers in Singapore have followed precisely this course to exit their completed projects, and the development of the Reit market in Singapore has made this an attractive option.