Strong interest for Lim’s office project

At RM1,500 per sq ft, he is setting a new benchmark

It seems like a fluke. With an office space supply in the Klang Valley of 100 million sq ft or more, how could Tan Sri Desmond Lim Siew Choon have garnered sufficient interest for his office space in Pusat Bandar Damansara (PBD) at RM1,500 per sq ft (psf)?

Notwithstanding the fact that the location is indeed very prime – Damansara Heights is an enviable address – property consultants have categorised that location as on the fringe of the KL city.

Yet, according to sources, he has secured buyers, some of whom are “on the waiting list” for nine blocks of offices he will be developing in PBD with a combined 1 million sq ft. According to sources, some parties have paid an earnest deposit as they go through the due diligence process and set their financials in order. Previews started the last quarter of 2014.

Sources say at that price, Lim’s PBD development – to be undertaken privately via landowner Impian Ekspresi Sdn Bhd – would be setting a new benchmark in that area.

Interestingly, Kumpulan Wang Persaraan (KWAP) issued a statement on Wednesday that it had acquired the 39-storey Integra Tower, which is part of The Intermark development in Kuala Lumpur, for RM1.065bil. With a net lettable area of 760,715 sq ft, this translates into about RM1,400 per sq ft.

Located less than 2km from Petronas Twin Towers, Integra Tower is a grade-A office building and has the LEED Platinum certification. LEED, or Leadership in Energy and Environmental Design, is a green building certification programme that recognises best-in-class building strategies and practices. Platinum is the highest LEED rating. Comparing these two property deals on a per sq ft basis – one that is already built and the other that is going to be built – rightly or wrongly, it does seem as though the price of office space between Damansara Heights and the city centre is narrowing. The price of a building is determined by rental. According to KWAP, the Integra will offer an annual yield of 6%. Because of its green building status, rental at Integra begins from RM11 psf, according to a property website. There is a dispute here because property consultancy PPC International managing director Datuk Siders Sittapalam say Integra’s rental is no more than RM10 per sq ft on average.

As a benchmark, office rental at Petronas Twin Towers begins from RM12 per sq ft. Damansara Heights office space rental is between RM4 and RM4.50 per sq ft. With Lim’s offer at RM1,500 psf, rental for PBD will have to be at RM8 psf in order to generate an annual yield of about 6%, according to a source. But that is the current average rental for Grade A office space in the city, not in a suburban location like Damansara Heights.

It will, therefore, be interesting to see how much rental the regenerated PBD can command. A 4,500 sq ft office space in Menara Milenium is being advertised for RM5.50 psf.

According to sources, Lim’s strategy from the start has been to sell the office on a per block basis. In a challenging market scenario, this will be easier to do, the source says. Corporations can also name the office block after the company, a source says.

“This seems to be the strategy today among corporates. If they just buy a few floors, they cannot do that,” he says. He cites the offices in Bangsar South as an example.

In order to sell on a block basis – and because of the oversupply of office space in the Klang Valley – Lim opted for a strategy that “will not overwhelm the market” and one that the market “can absorb.”

Master plan

The initial plan was to have net lettable areas of 60,000 sq ft to 80,000 sq ft. Market research later showed that 100,000 sq ft was an optimum figure and adjustments were made. Although “already approved”, the master plan is currently undergoing minor adjustments.

“Therefore, it is not right to say that Lim has sold all nine blocks. Buyers have shown an interest by putting down a certain percentage of the price per block. If it costs RM100mil, they secure their position by putting down RM2mil. That seems to be the trend today,” the source says.

Unlike large city offices like Integra Tower which KWAP bought earlier this week which has some 25,000 sq ft per floor, Lim’s nine blocks will have a floor area of about 10,000 sq ft. The lowest will be six storeys high, while the highest will be more than 20 storeys, a source says.

Car parks will not be an issue, unlike many of the offices located in Damansara Heights area, the source says. Shoppers will fill the PBD car parks on weekends, and office crowd on the week days. The MRT station will be another help.

Lim’s purchase of 6.34 acres in March last year has increased his land holdings in the 46-acre PBD, from 9.5 acres which used to belong to Johor Corp (JCorp) to 15.84 acres. Known as the second phase, Lim will expand the mall he is planning on the larger piece of JCorp land to this second plot which will be connected to the Pusat Bandar Damansara MRT station. The MRT station is currently being constructed in the Jalan Damansara-Jalan Johar intersection.

A source says Lim will build a five-star mall which will be operated by the Pavilion group. The mall, says the source, will have a net lettable area of between 400,000 and 450,000 sq ft, slightly bigger than Bangsar Shopping Centre which is about 322,000 sq ft. This second phase of the mall will be connected to the MRT station. It is this connection which will help to improve the value of the former JCorp land. It was reported that Lim, on a give and take basis, forked out about RM770mil for the JCorp land.

Apart from the nine blocks of office buildings, there will also be three blocks of serviced apartments which will take up 1 million sq ft. Previews of the serviced apartments may begin at the end of the year, with prices beginning from RM1,700 per sq ft or more.

According to industry sources, this is “reasonable” because of the prime location, the two MRT stations and amenities available within that 46 acres.

At RM1,700 psf or more, it will be higher than One Menerung high-rise development, which is between RM1,200 and RM1,400 psf.

Regeneration

By any measure, PBD, which is currently undergoing a regeneration of sorts has piqued interest of various parties. Lim, executive chairman of the Malton group, and better known for KL Pavilion, is undertaking the PBD via his private vehicle Impian Ekspresi Sdn Bhd, who is both land owner and developer.

Lim went into a legal battle with JCorp, the state investment arm of Johor state for that first 9.5 acres, on which he will build his nine office blocks.

The tussle was settled when JCorp and its companies exchanged that 9.5 acres for RM500mil cash and 266,668 sq ft of future office space in PBD, in two portions of 186,667 sq ft and 80,000 sq ft.

JCorp subsequently exchanged that 186,667 sq ft of future office space, valued at RM140mil, for the existing V Square building in Jalan Barat, Petaling Jaya and 964 parking bays (both built by Malton Bhd), while Malton got the rights to space equivalent to RM140mil in the to-be-redeveloped PBD.

A Sept 2, 2014 report by RHB Research said Malton had the option to sell the office space at PBD to Lim starting from RM825 psf to RM1,050 psf over a period of four years starting from November 2014. With Impian Ekspresi selling the office space today at RM1,500 psf, this means another gain for Lim.

JCorp’s rights to 80,000 sq ft of office space in the redeveloped PBD remains. According to the same RHB report, given the RM140mil price tag for V Square, this implies a value of RM750 psf, which means that 80,000 sq ft tranche is worth RM60mil.

In March of last year, Lim increased his stake in PBD when, via Jendela Mayang Sdn Bhd, he bought 6.34 acres next to the former JCorp land from vendor Selangor Properties Bhd (SelProp) for RM450mil, or RM1,628 psf. Jendela Mayang is linked to Lim.

The land, previously used as a HELP Institute car park, was independently valued at RM300mil, or RM1,086 psf. This means Lim is paying 50% more than its valuation.

Other stakeholders on that 46-acre site includes SelProp – the original landowner of a good part of Damansara Heights – which has 13 acres in PBD and GuocoLand group, who is developing Damansara City on 8.5 acres. GuocoLand is also building a mall, a hotel, offices and serviced apartments there. - By The Star