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GLOBAL COMMERCIAL REAL ESTATE MARKET ROUNDUP
- $57 Million Penthouse Sale Flops as Hong Kong Commercial Market Cools
- Qatari Investors Snap up Affluent Park House Development in London's West End for $370 Million.
- Moscow's Commercial Rents Down Almost 25% as New Projects Flood Other Russian Markets.
- BP Claims Its Plans to Sell 700 Company-Owned and Operated Retail Sites Were Made in November 2007 and Not After the April 20, 2010 Oil Spill in Gulf of Mexico.
- Developers in India Turning to Capital Markets to Raise Cash for New Projects.
Hong Kong Billionaire Lee Shau-kee Embarrassed Over $57 Million Failed Deal
At $57 million, It was supposed to have been the world's most expensive apartment deal. But Hong Kong can no longer boast of having that attainment.
The prospective buyer of the penthouse at 39 Conduit Road in the heart of Hong Kong also failed to complete five other purchases in the building, according to Henderson Land, which developed the property.
The company said 20 transactions had been cancelled, a huge embarrassment for Lee Shau-kee, Henderson's chairman, reports the Financial Times of London.
Henderson's disclosure followed months of skeptical media reports over sales at the development. When Henderson announced it had sold the duplex apartment for a record HK$88,000 ($11,295) per square foot last October local newspapers questioned whether the buyer had purchased other flats in the building at a discount to offset the record-setting transaction.
Some analysts said the sale played a part in pushing up Hong Kong property prices, which rose 30 per cent last year.
The Financial Times reports Henderson drew heavy criticism after marketing the penthouse duplex as being on the 68th floor of 39 Conduit, even though the building only has 40 stories.
Lee Shau-kee
In addition to not having any floor with the number four, the building's stories jumped from the 39th to the 60th floor. While six is a lucky number in Cantonese, there is no obvious reason not to have floors starting with the number five, the Financial Times reports..
The property market is cooling after the government announced a range of measures to tame prices, including raising the stamp duty on property sales and holding more land auctions.
It announced rules restricting over-the-top sales tactics by developers. "Clear market information and transparent sales arrangements and transaction records are important to flat buyers," the government said this week.
The cooling of the market has been compounded by a drawing back by mainland Chinese buyers, who account for as much as half of transactions in some luxury projects, due to tightened liquidity at home, according to the Financial Times.
Buyers in the 20 scrapped deals forfeited deposits of HK$133.36m, or 5 per cent of the purchase price. Henderson will take a HK$734m charge on its results for the first half of this year. The company said it would put the flats back on the market, but would not lower their prices.
Qatari Investors Shell Out $370 Million for Trendy Park House Project in London
Qatari investors are on a roll. Developer and investor Barwa Real Estate Co. (BRES.DO) said it has contracted to buy Park House development in London's fashionable West End district for GBP250 million ($370.4 million US) - evidence that Qatari investors continue to snap up prime real estate in the city.
(GBP is pound sterling or one British pound valued today at $1.48 U.S.)
"Qatar has emerged as a new global powerhouse and is expected to be the largest source of cross-border real-estate capital during 2010," Jones Lang LaSalle said in a prepared statement.
Dow Jones Newswires report Qatar's wealth is based on the rapid expansion of its gas industry over the past 10 years and, in response to a windfall of revenue, the government has created a number of major investment vehicles including Qatar Investment Authority, Qatar Holding, Qatari Diar and Barwa, which have been buying up prime London properties and stakes in companies.
Recent purchases of property in central London by Qatari investors suggest they have called the bottom of the market and are still benefiting from the weakness of sterling.
Qatar, which operates some of the world's largest sovereign wealth funds, last month paid GBP1.5 billion ($2.2 billion US) for Harrods, one of the world's most famous department stores.
Late last year, Qatari investors bought the U.S. Embassy building in Mayfair for $664 million, and in 2007 they paid almost GBP1 billion ($1.48 billion US) for the 13-acre Chelsea Barracks site in the heart of London.
Qatar also has a 24% holding in Songbird Estates PLC (SBD.LN), which owns most of London's second financial district, Canary Wharf.
Jones Lang La Salle expects more deals. Qatari investors are preparing to make an offer on London hotel the Grosvenor House, said a person familiar with the matter. The property is expected command a price tag of about GBP500 million ($741 million US).
According to media reports, Qatari investors also are looking to buy a share in landmark Savoy Hotel.
Barwa, which is 45% owned by Qatari Diar, the property unit of the country's sovereign wealth fund, the Qatar Investment Authority, will pay Land Securities Group PLC (LAND.LN) GBP225 million immediately for Park House and GBP25 million when building work is completed. It will also meet all of the construction costs.
On top of that, Barwa will pay a share of the profit to Land Securities, the U.K.'s largest landlord and developer. Based on current expectations for office and retail rental values, this profit share is estimated at about GBP33 million and is capped at GBP50 million.
New Construction in Russia Drives Up Vacancy Levels in Major Cities
'Green shoots' of recovery can be seen in the Russian economy and real GDP growth is expected throughout 2010, according to Companiesandmarkets.com and OfficialWire based in London.
But the commercial real estate market is another story.
Industry sources in Moscow, St Petersburg, Ekaterinburg and Samara confirm that rental rates have fallen in each of the main sub-sectors (offices, retail and industrial) over the last year or so.
In Moscow, rental property rates for office and retail premises have decreased by almost 25% in 2009 as compared to 2008 and for industrial premises the decrease was about 20- 25%. Local sources put this down to the global economic crisis causing the departure of many international investors and therefore producing lack of financial deals.
Local sources in Ekaterinburg describe many new projects that are currently under construction and estimate the total vacant rental space for the commercial properties to be around 25% for office space,10% for retail space and industrial space at 18%.
Samaran sources report an over-supply of commercial real estate. In the first half of 2009, the office space market St Petersburg saw drops in rental values but by the end of the year, rates in the business centers virtually ceased to fall, levels of vacant space stopped growing and it has since been in a period of stabilization.
One theme common to all four cities is the abundance of new projects. New supply will, in general, be extensive and cover all three subsectors.
Capital values have dropped over the last year or so but by less than the extensive falls that rental prices have achieved. Rents dropped between 20% and 35% in 2009, across all sub-sectors of the commercial real estate market.
Companiesandmarkets.com and OfficialWire expect that capital values will not pick up until the market has absorbed the amount of new developments coming online in the next two years.
"Therefore, in projecting yields, we assume that they will grow gently across the country for the next few years, until capital values catch up with rental prices," the publications state.
BP Says Its 700 Retail Properties Were Up for Sale Before April 20 Oil Spill
BP Plc, the largest commercial corporation in the United Kingdom and one of the world's largest oil-drilling companies, says through its broker, Jones Lang LaSalle, that the April 20, 2010 oil spill in the Gulf of Mexico did not trigger the sale of 700 retail properties in 22 states.
BP says the properties went on sale in November 2007 and was in line with the company's previous divestment strategy, reports CSP Daily News of Milford, CT.
Guy Ponticiello
"The well-situated sites are located in established, highly trafficked retail areas in key markets throughout the Midwest and East Coast," Ponticiello told CSP Daily News. "These are surplus and idle properties that BP has been planning to divest for many, many months.
"The decision to divest them pre-dates the April oil spill in the Gulf of Mexico and is aligned with the company's plans to exit from direct service station ownership that were announced a few years ago."
BP's U.S. Convenience Retail unit announced a plan in November 2007 to sell its approximately 700 company-owned and -operated retail sites over a two-year period.
This approach is in line with BP's strategic plans to expand and grow the brand to reach more consumers with its products and services, the company has said.
Since announcing its intention, BP has sold or is selling sites in central Florida, Cleveland, Columbus, Ohio, Pittsburgh, Atlanta, Chicago, northwest Indiana, Arizona, California, Oregon and Washington, among other markets.
The majority of the properties are being marketed as redevelopment sites while some are being offered as part of potential franchise deals, according to the website of Jones Lang LaSalle.
Jones Lang LaSalle declined to comment on any reputational risk that BP has in marketing the properties, which began approximately two weeks ago.
Eric Anton
Eric Anton, an executive managing director at New York City-based real-estate investment service Eastern Consolidated, told the news agency that the negative publicity from the oil spill in the Gulf of Mexico "may create more buzz" for the properties because buyers may assume they may have an advantage on pricing terms.
"From a buyer's point of view, psychologically, they know BP has to raise cash. So, [buyers] want to get in there while the getting is good," Anton said.
BP markets more than 15 billion gallons of gasoline every year to U.S. consumers through 13,000 retail outlets. The company is the single, global brand formed by the combination of the former British Petroleum, Amoco, Atlantic Richfield (ARCO) and Burmah Castrol.
The ampm brand was founded in 1978 in Southern California by ARCO. The brand became part of BP when it acquired ARCO in 2000.
Developers Bank on Capital Markets to Fund New Projects in India
The changing skyline of Gujarat cities is also changing the rules of the game for Realtors in cities like Ahmedabad, reports The Times of India.
"With the cities pushing their boundaries and big realty firms eyeing a pie in the development cake, local developers are turning to capital markets to raise resources to ride the next growth wave," the newspaper notes.
While JP Infrastructure Ltd (JPIL), popularly known as Iscon group, will come up with an initial public offering in August this year, two other realty firms, Dharmdev Infrastructure Limited and Safal group too plan to enter the capital market next year.
The last time an Ahmedabad-based realty company got listed on the bourses was Radhe Developers in 1995, which has a market capitalization of Rs 60 crore. The only other listed Ahmedabad realty firm is Ganesh Housing with a market cap of Rs 550 crore.
Now, JPIL plans to raise Rs 120 crore to fund its projects.
"The funds will be utilized for acquiring land for two residential projects in Ahmedabad and Vadodara," JPL chairman Pravin Kotak told the newspaper. "A part of the funds will be diverted for some ongoing projects."
The company has already filed a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI). JPIL will dilute 25 per cent equity by offering 76,00,000 equity shares of Rs 10 each.
"We plan to come up with an IPO to meet our future expansion plans in next fiscal," says Umang Thakkar, chairman and managing director of Dharamdev Infrastructure, which is coming up with township and hospital projects.
Dhiren Vora of Safal group says his company too would hit capital markets in the near future.
Umang Thakkar
"Costs have escalated and some of the national players have created competition for the local developers. It is necessary for the local builders to have more liquidity. In the future many more companies are likely to hit the capital market," Jaxay Shah, president CREDAI (Gujarat) tells The Times of India.
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