ACT doubles down in the US

In James Toh’s office on the attic level of a conserved shophouse on Mosque Street in Chinatown sits a fish tank for a coffee table. It was installed several years ago. “I don’t have a view from my office,” explains Toh, managing director of ACT Holdings. “So, I thought I should introduce some indoor live greenery and fish.”

When Toh purchased the goldfish several years ago, they were only the size of his thumb. “Now, they’ve grown so much that even the aquarium maintenance guy is surprised that they can grow so well in a fish tank of this size,” he says.

The rate of growth of the fish rivals that of his property portfolio. Over the past two decades, ACT has developed 25 residential projects in Singapore, many of which are conventional landed and strata landed housing projects in both the prime districts and the suburbs. These include several waterfront bungalows at Sentosa Cove and a row of terraces called Villas at Sentosa Cove; Ventura Heights, a strata housing project with eight bungalows and 32 semi-detached houses at Astrid Hill; One Mount Rosie, a strata landed development with 12 units; and the 59-unit strata landed project Watten Residences.

ACT’s last major site acquisition was the former Singapore Crocodile Farm at 1 Surin Avenue/ 709 Upper Serangoon Road. ACT, along with its partners Nobel Design Holdings and Pinnacle Assets Group, purchased the two adjoining sites with a combined site area of 42,851 sq ft for $37.5 million, according to a caveat lodged in September 2012.

The site has since been redeveloped into One Surin, a strata landed housing project with 27 units. The freehold project is scheduled to be completed by year-end, and ACT Holdings intends to relaunch the project then. “Home buyers will be able to appreciate the project better when it’s completed,” says Toh.

This was evident when another strata landed housing project by ACT Holdings was completed in March this year. Only seven strata terraced units in the project, called Charlton 27, remain unsold. Most of the units were sold when the project was launched in May 2013, just a month before the introduction of the total debt servicing ratio (TDSR) loan framework at end-June that year, which caused home sales across the island to wither.

Sales picked up after the completion of Charlton 27. Three units with built-up areas of 4,758 to 5,952 sq ft have been sold for $3.08 million ($647 psf) to $3.54 million ($595 psf), according to caveats lodged with URA Realis from April to June. All the strata terraced houses at Charlton 27 come with five en suite bedrooms, a lift, fully fitted kitchen and private basement parking for two cars.

The units at One Surin, which were launched in July 2014, have slightly smaller built-up areas, generally ranging between 3,789 and 4,166 sq ft, with four bedrooms. The houses are also priced lower, at under $3 million. Two units with strata areas of 3,789 to 3,821 sq ft were sold recently for $2.6 million ($705 psf) and $2.67 million ($680 psf) respectively, according to caveats lodged in June and September.

A month after One Surin was launched, the government introduced new regulations for strata housing development in August 2014. They included a recalibration of the formulae used to calculate the maximum number of dwelling units allowed in a strata landed housing development — using only 40% of the total land area to be divided by the typical footprint of a conventional landed housing unit. The minimum communal open space within a development was also increased from 30% to 45% with immediate effect, with at least 25% to be set aside for on-ground greenery. This basically reduces the number of units a developer can build in a strata housing project. On the other hand, “it will further enhance the quality of the living environment for residents”, said URA.

This revision comes on the back of an earlier change in guidelines in February 2009, which had already capped the number of units that can be built on a development site. It required that dwelling units have a minimum plot size of 150 sq m for terraced units, 200 sq m for semi-detached and 400 sq m for detached houses. The maximum number of units to be built cannot exceed the development site area. That had already reduced the number of strata housing units that a developer can build on a site.

Both Charlton 27 and One Surin were launched before the new guidelines announced in August 2014 kicked in. “Yet, these two projects are what we consider the fourth-generation strata landed housing projects by the developer,” says Thomas Ang, associate director of OrangeTee, who is marketing Charlton 27. “Potential buyers will be able to appreciate the difference between these two projects and the other strata landed housing projects in the same neighbourhood.” He reckons the strata terraced units will appeal to those who want freehold tenure, a new property that they can move into immediately, and five bedrooms.

ACT is no stranger to the Kovan neighbourhood, located just off Upper Serangoon Road, having launched a handful of residential projects there over the past five years. Three are fully sold and completed: 21-unit strata landed housing development Charlton Residences, a joint venture with SingHaiYi Group that was completed in 2014; 198-unit Casa Cambio, a private condo also completed in 2014; and neighbouring 53-unit Cambio Suites, a private condo that was completed earlier this year.

“We target areas where we see growth,” says Toh. “Property values go up where there’s improvement in infrastructure, good schools and job growth — and that will lead to population growth.”

Besides the Kovan area, ACT has also developed many strata landed housing projects in the Braddell Heights neighbourhood, for instance Dunsfold Residences, a six-unit strata- titled bungalow development; Matlock Residences, a six strata bungalow development; and Muswell Hill, a bungalow development with three houses.

Toh’s interest in property development that began 20 years ago was initially driven by a desire for adaptive reuse. That led to his first project, Gambier Court on Kim Yam Road, which was the building of a 12-storey extension with 23 apartments behind a row of conserved shophouses. The 99-year leasehold development was completed in 1999 and won the URA Heritage Award.

ACT’s second project was the acquisition of a row of dilapidated shophouses at 42 to 45 Mosque Street in Chinatown in 2002 from URA. They were built in the 1930s by the Singapore Improvement Trust to house customs officers during the colonial era. They have since been restored and converted into Empire Lofts, a residential project for long-term lease. Completed in 2004, it also won the URA Heritage Award. The apartments at Empire Loft are a mix of one- and two-bedroom units, which are leased at $3,000 to about $6,000 a month. They continue to be popular with expatriates, says Toh. It is also where ACT has its Singapore headquarters.

This year, the company completed two pairs of semi-detached houses called Greenview Residences at Greenview Crescent, off Bukit Timah. All four semi-detached houses have been sold at $5 million to $6 million each.

Following the relaunch of One Surin and the sale of the remaining units at Charlton 27, ACT will have no other new developments in the pipeline. “We’re not planning to invest in any large deals in Singapore in the next year,” says Toh. This is contrary to many investors who believe that the time is ripe to return to the prime residential market as bargains have started to emerge. “Even though prime condo prices in Singapore have corrected, gross yields are still sub 3%, which makes the investment case difficult,” points out Toh.

ACT has turned its attention to the overseas markets instead, primarily in the US and Indonesia. Its maiden development in Indonesia is a condominium project in Alam Sutera Township, an emerging area in Greater Jakarta. It is a joint venture project with several partners and will be launched in Jakarta later this year. “If the rules regarding foreign home ownership become clearer, we may consider bringing the project to Singapore,” says Toh.

In the US, ACT established its head office in Atlanta, Georgia in the early 1980s. Toh’s father, entrepreneur Toh Aik Choon (A C), founded ACT Enterprises in 1969. He was also an early investor in the US real estate market, with a development on industrial land in Dekalb County, Georgia through Atlanta International Industrial Park Inc. In 1987, A C started ACT Investments with Peter E Chang, and the company’s first project was the development of a 36-storey luxury apartment tower, the Grandview in Buckhead, Atlanta.

A C passed away in 1990 at 63, when Toh was only 25 and working at his first job in consulting firm Booz Allen. “There was not enough time for my father to pass on a lot of his experience,” says Toh, a father of three boys aged six to 14. “He was also more of an industrialist and entrepreneur than a property developer.” Having attended school in the US, Toh was well acquainted with the country. In 1982, he entered the Georgia Institute of Technology in Atlanta as a freshman and subsequently obtained his bachelor’s degree at MIT and an MBA at Wharton Business School in Boston.

Just as he did in Singapore, Toh focused on residential developments, particularly in the southeast region of the US, in cities such as Atlanta; Jacksonville, Florida; Charlotte and Durham in North Carolina; and Nashville, Tennessee. “These cities are probably not on the radar of most Asian investors,” says Toh. “However, they have enjoyed strong job and population growth over the last five to 10 years. The cap rates are reasonable. And as long as they continue to attract the millennials to move there for better quality of life and job opportunities, these markets will continue to expand.”

Many of the projects developed by ACT in the US are apartments for rent rather than condo blocks for sale. They include Bluwater in Jacksonville, Florida, a project completed 1½ years ago; Canton Mill Lofts, a collection of historic mill buildings located about a mile from downtown Canton, Georgia; and Inman Quarter Apartments at Atlanta’s Inman Park. The only project that ACT currently has for sale in the US is 1065 Midtown in Atlanta. A luxury condo with 52 units span the 27th to 38th floors of the high-rise tower. The lower floors are occupied by the Loews Atlanta Hotel, and the residents will be able to enjoy the amenities and services of the hotel. The units at 1065 Midtown were launched for sale last year, and half have already been taken up. The units — a mix of one- to three-bedroom apartments — are priced from US$1 million to US$2 million each, or US$600 to US$700 psf. “This is expensive by Atlanta standards, although in Singapore, it’s considered mid-market because prices here are so high,” says Toh.

About five years ago, ACT invested in TriBridge Residential, a multi-family investment, development and management company. Founded in 1998 in Atlanta, it manages more than 10,000 residential units in properties across Georgia, Florida, Texas, Tennessee, North Carolina and South Carolina. Toh intends to continue investing in the US. “Comparing asset prices and growth opportunities globally, the US is still a relatively attractive market,” he says.

Toh had stepped up his investments in the US since 2009, following the global financial crisis. “Prices have recovered from the lowest points of the financial crisis in 2009,” says Toh. “We’re no longer looking at distressed deals. I think everything is at fair value today. Where we buy depends on where we perceive growth. We’re looking for superior growth rather than distressed valuations.”

It is more important to invest based on fundamentals, which means looking at yield-based valuation of assets, adds Toh. For him, the US multi-family assets in ACT’s core markets such as Atlanta continue to yield 8% gross a year, with positive earnings growth momentum. “So, that’s where we will continue to allocate our capital,” he says.

Rents of apartments in Atlanta and Nashville are about half the rate in the gateway cities of Los Angeles, New York and San Francisco. “Many average Americans can’t afford to live in these gateway cities,” says Toh. “While salaries in these big cities may be higher, the rents may take up half their pay.” This has led to more Americans moving south to Atlanta, Nashville and Charlotte to enjoy a lower cost of living, he adds.

In Singapore, the homeownership rate was 90.8% in 2015, according to the Department of Statistics. Meanwhile, in the US, it was 62.9% in 2Q2016, according to the Census Bureau of the Department of Commerce.

Over the past five years, the recovery in the US market has been driven mainly by rental apartments more so than condos for sale. That trend could reverse, with more condos built for sale again. “If more people decide to buy their own condo unit rather than rent, there’s an opportunity to do a conversion, that is, to strata title the units for sale,” says Toh. “That’s a potential exit for some of our properties.” In the US, it is just a matter of changing the legal use of the property, he adds.

Toh visits the US at least three times a year and has a home in Atlanta, as it is where the head office is. Like everyone else, he is monitoring the US presidential election closely. He is not deterred from continuing to invest in the country, “regardless of the outcome of the election”, he says.