BT : First Chevron House, then Hitachi Tower

Business Times - 21 Aug 2010

First Chevron House, then Hitachi Tower

Deals involving the two prominent buildings may shake up the office market

By KALPANA RASHIWALA

CHEVRON House could be the next big office deal on the cards, say market watchers. This follows the sale of about $1.9 billion worth of office blocks so far this year. Chevron House was bought by Goldman Sachs funds in late 2007 for $730 million or about $2,780 per sq ft of net lettable area and the purchase was mostly funded by a consortium of lenders led by Standard Chartered. That financing facility is understood to be expiring in October and the bankers and Goldman Sachs are said to be weighing their options.

BT understands that potential buyers have been knocking on the doors of Goldman Sachs and the lenders and that property agents could soon be appointed to conduct a sale process such as a tender or expression of interest. 'The way I look at it, Goldman could have about three options - seek refinancing, bring in a joint venture partner or sell the asset completely,' suggests an industry observer.

Analysts say that the consortium of banks could have loaned the Goldman funds about 65 per cent of the 2007 purchase price, which would work out to about $1,800 psf of net lettable area. The loan-to-value covenant on the financing facility would have been breached sometime ago following the steep slide in office capital values last year. Interest coverage ratio for Chevron House would also have fallen on lease renewals in the building; average Grade A office rents in Singapore today are about $9 psf a month, or 40 per cent lower than the $15 psf three years ago.

Analysts polled by BT estimate the property could fetch anything from about $1,900 psf to $2,200 psf (or about $500 million to $577 million). The most recent benchmark would be the $2,125 psf that Ho Bee achieved when it sold four office floors at Samsung Hub at Church Street. While Samsung Hub is a much newer asset and stands on a site with superior leasehold tenure (999 years) than Chevron House (which is on a site with 78 years' remaining lease), the latter boasts a more choice location next to Raffles Place MRT Station.

Goldman Sachs funds also bought Hitachi Tower, behind Chevron House, in early 2008 for $811 million or about $2,900 psf of NLA. Stanchart also heads the consortium of lenders for that purchase; the financing facility is said to end early next year. So a sale of Hitachi Tower could also be on the cards a little later down the road.

Hitachi Tower would be worth more than Chevron House, say analysts, citing its superior land tenure (999 years) and facing (along Collyer Quay). However, one drawback about the asset is the impending departure of American Express - which is said to occupy about 70,000 sq ft - to Marina Bay Financial Centre Tower 2.

Last week, Goldman Sachs funds sold DBS Towers One and Two along Shenton Way for $870.5 million or around $970 psf of NLA, marking the biggest commercial property deal in Singapore since mid-2008. Goldman Sachs reaped a profit from that deal, having paid $690 million for the property in 2005.

Some of the blocks sold this year were 'pure office' deals, that is the buyers bought the assets on their existing office use - such as 1 Finlayson Green and Robinson Point - while others such as Chow House and StarHub Centre were probably acquired for their potential for redevelopment into other uses.

Interest from both local and foreign investors in the Singapore office market has been warming on the back of recovering office rentals and the easier climate for fund-raising.

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CHEVRON HOUSE
Bought by Goldman Sachs funds in 2007 for $730m or about $2,780 per sqft of net lettable area