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Its latest acquisition is the newly built Parakou Building located on Shenton Way in Singapore's downtown commercial district. New Star paid a record S$2,013 per square foot ($1,337.4) for a total outlay of S$128 million ($81.8 million). The building's tenant list includes blue-chip names like Parakou Shipping and Cisco Systems.
The New Star purchase continues a trend of foreign investments pouring into commercial property in Singapore. In March, Australia's Macquarie Global Property Advisors committed S$1.04 billion ($690 million) to purchase Temasek Tower, a 52-storey building also on Shenton Way, paying at S$1,550 per square foot. Meanwhile, the Swedish financial group SEB paid S$525 million or S$1,783 per square foot for the SIA Building; and Union Investment Real Estate AG put down S$260 million or S$1,555 per square foot for Vision Crest.
According to a Jones Lang Lasalle report, private equity groups and non-listed funds have invested a total of S$2.4 billion in Singapore office property in the six months to June 2007. This is 26.3% more than the S$1.9 billion in foreign investment that entered the island state in the entire 2006 calendar year.
Singapore's buoyant economy has sent office rent soaring, rising by as much as 62% in 2006. Demand for office space is outstripping supply, fuelled in part by government incentives that are encouraging corporations to set up shop in the country. The Singapore Land Authority is hoping to meet the shortages by making government-owned sites available for re-development and leases for commercial purposes. Such sites include the River Valley Primary School, CPIB Building, Moulmein CC and Pasir ITE.
Two other major developments are also under construction - one in Marina Bay and another in Anson Road. But these won't be ready for release until 2011.
Simon Tyrrell, the head of acquisitions at New Star, outlines the fund's focus on prime office space with high income potential. ôOur policy is to buy good, solid, income-producing properties with better locations in cities. We are a long-term holder in Asia and are happy to hold for five to 10 years.ö
Tyrrell has spent four years investing in real estate in the US and Europe before moving to Asia. He says the Singapore market offers some attractive opportunities compared to investments in the West. ôThere is a lot of growth potential here," he says, pointing to an expansion in the banking and shipping sectors as a driver of growth.
Elsewhere in the region, New Star has committed Ñ7 billion ($57 million) to investments in Japan - two in Kokura and another in Tokyo. In Australia, the fund has invested in two Sydney sites valued at a total of A$72 million ($63.7 million). The first site has already been closed, while the other is expected to be completed next week.
New Star's acquisition team is also contemplating a move into China by mid-2008, but there are still no plans to open an office on the Mainland. Philip Goldsmith, New Star's managing director, says while the company sees potential in China, it has reservations about how businesses are structured. In particular, the need to have a joint venture partner. Goldsmith says New Star's chairman, John Duffield, likes "to have his finger on the pulse" but he also prefers to have full ownership of his businesses.
New Star distributes its funds in Asia mostly through institutions in Hong Kong and Singapore. All but two of its UK funds are offered to Asian investors. The two exceptions are the Global Financial Fund and the International Property Fund, which have been refused authorisation due to a technical glitch in the law. The International Property Fund has, however, recently been recognised as a restricted scheme in Singapore.
The AU$85 billion ($61.6 billion) Australian super fund has some exposure to indebted property developer Evergrande. Meanwhile, China’s construction finance is part of its core strategy in real estate.
Investors are seeing the risks, but also the opportunities of the logistics sector. Warehousing their fears for the moment, they can see it's a good conduit to high-growth assets.
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SGX’s new framework for Spacs will likely provide investors with a much-needed channel for direct deals, but the verdict is still out on whether it will bring liquidity to the bourse.