AWARDS: Steering City Developments through the age of disruption

/ EdgeProp |

October 29, 2017 10:30 AM SGT

When City Developments Limited (CDL) announced on Aug 11 that Sherman Kwek had been appointed CEO-designate and would assume the position from January 2018, it reflected the transfer of power to the third generation of the Kwek family. The timing could not have been better in an era when entrepreneurs around the world are more interested in disrupting and upending industries than in continuity and stewardship.

“Disruption has become the norm in many sectors, including the real estate industry,” says the 41-year-old Kwek in an email response. “There are opportunities for companies to partner with and integrate into new-economy platforms.” Intuitively, Kwek understands that success today comes from embracing technology and, more importantly, understanding people’s aspirations and wants.

Opportunities in tech disruption

For instance, the rise in demand for workspace flexibility and the evolution of co-working premises was not lost on CDL. The group invested $14.8 million for a 24% stake in Distrii, a leading operator of co-working spaces in China in January. Distrii will open a 60,000 sq ft co-working space at CDL’s signature tower Republic Plaza in Raffles Place in 1H2018.

In September last year, CDL paid RMB100 million ($20.5 million) for a 20% stake in fast-growing Chinese online apartment rental platform Mamahome, which has more than 170,000 listings. “We plan to leverage the platform to enhance our residential leasing assets,” says Kwek.

Distrii’s flagship and largest co-working facility at Suhe Centre in Jing’an, Shanghai. CDL owns a 24% stake in Distrii. (Pictures: Distrii)

In the hospitality sector, CDL invested in a cutting-edge Central Reservation System that has been adopted by several thousand hotels and took a stake in Handy, a travel platform that enhances the travel experiences of hotel guests by providing them with free mobile Handy devices to help them stay connected throughout their trip.

“We will continue to tap growth opportunities arising from technological disruptions, focusing on strategic investments in sectors that relate to our core businesses of real estate and hospitality,” says Kwek.

New York start

When he graduated from Boston University in 1997, Kwek returned to Singapore for national service. After completing NS, he headed back to the US in January 2000 to pursue his interest in venture capital and investment banking. “I wanted to work in the financial services sector and gain experience outside the Hong Leong Group,” he explains.

From top to bottom: Novotel New York Times Square, Millennium Broadway New York and Millennium Hilton New York One UN Plaza are some of the hotels owned by Millennium & Copthorne, a wholly-owned subsidiary of CDL. (Pictures: Millennium & Copthorne)

After several years, he returned to the fold and joined the US division of Millennium & Copthorne (M&C) Hotels plc, and was based in New York. “Back then, we had over a dozen hotels in the US, including the renowned Plaza Hotel that our chairman had acquired from the current US President Donald Trump,” Kwek recounts.

CDL executive chairman Kwek Leng Beng (Sherman’s father) took New York and the hotel world by storm in 1995 when he and Prince Alwaleed of Saudi Arabia bought the Plaza Hotel, the crown jewel in Trump’s business empire, for US$325 million. It was sold for US$675 million in 2004.

At M&C in New York, Sherman Kwek started out as a management trainee. He worked his way through various operational departments and sales-related functions to have a good understanding of how a hotel runs. He then assumed a business development and asset management role to assist the regional president in charge.

After his stints in banking and hospitality in the US, Kwek returned to Asia and worked in various industries under Hong Leong Group before ending up in real estate, “which has been my passion ever since”, he says.

Continuing the legacy

As a third-generation member of the family to take the reins, Kwek says, “I feel deeply honoured to work in a company that my forefathers had tirelessly built up over many decades.”

His grandfather Kwek Hong Png’s story is one that will inspire immigrants around the world. The second son of a peasant, he boarded a cargo vessel at Xiamen port with an $8 ticket, a mat and a quilt. He arrived in Singapore in 1928 at the age of 16.

He started out as a store hand in his brother-in-law’s shop and worked his way to general manager. He engaged a tutor in the evenings to help him improve his reading and writing. After 10 years, he had saved $7,000 to start Hong Leong in 1941 as a general trading company. The name Hong Leong was derived by combining hong, which means big, good and plentiful, and leong, which means great prosperity.

As the business expanded, Hong Png invited his brothers Hong Khai, Hong Lye and Hong Leong to join his firm. He gave them a 65% stake in the company and retained 35% for himself. In the mid-1960s, the Kweks began to focus on real estate. In 1971, Hong Leong acquired a substantial interest in CDL, and by the 1970s, Hong Leong had one of the largest landbanks in Singapore.
Also Read: CDL sweeps three awards

Property and hotel mogul

Kwek Leng Beng, Hong Png’s eldest son, who graduated with a law degree from the University of London, joined the family business as a general manager and director of Hong Leong Finance in 1967. He succeeded his father as exucutive chairman of Hong Leong Group in 1990 and assumed the role of executive chairman of CDL in 1995.

Under Leng Beng, CDL established a reputation for acquiring hotel assets in major cities across the world at bargain prices. Over a span of 28 years, CDL’s hotel portfolio grew from six assets in Asia to 134 properties with a total of 38,121 rooms worldwide in M&C’s portfolio, making it one of the biggest hotel owners and operators in the world. On Oct 9, CDL announced that it might make a cash offer for the London Stock Exchange-listed M&C at 552.5 pence a share. At that price, M&C will be valued at about £1.794 billion ($3.2 billion). CDL owns a 65.2% stake in M&C.

Today, CDL’s market capitalisation of more than $11.5 billion (as at the close of the market on Oct 25) makes it one of the biggest listed property companies in Singapore. “My grandfather and father shared common traits — acumen, vision and passion for the business,” observes Kwek. “They worked tirelessly and had strong fighting spirits. Perseverance, determination and hard work were their trademarks. Adds Kwek: “I endeavour to build upon this legacy and continue to grow the business while staying anchored to the core values that had enabled our company to flourish.”

‘Don’t get emotional’

Early in his career, Kwek learnt not to be emotional when it comes to investments. “It can seriously cloud one’s judgement,” he says. He had the opportunity to apply that lesson in the recent en bloc purchase of Amber Park by CDL and Hong Realty, the privately held real estate arm of Hong Leong Group. They proposed a tender price of $906.7 million ($1,515 psf per plot ratio), emerging as the top out of eight bidders in a tender conducted by JLL that closed on Oct 3.

“I approached the tender in the same manner that I approach all other investments,” says Kwek. Even though CDL was the original developer of Amber Park more than 30 years ago, “that factor played no part in our decision to bid for the site and the price we were willing to pay”, he adds. “The decision to bid for the site and the eventual price point we chose were based purely on factual information and our assumptions and analysis.”

View of the sea from a penthouse at Amber Park, which CDL purchased en bloc for $906.7 million in early October. (Picture: Samuel Isaac Chua/The Edge Singapore)

The freehold tenure and location — proximity to East Coast Park and the beach, park connectors, Parkway Parade shopping centre and the future Tanjong Katong MRT station — were key considerations.

“We have always been big fans of the East Coast area,” Kwek says. This is evident from the string of projects that CDL and the Hong Leong group of companies had developed over the past decades — Amber Park, Amber Glades, Aalto, King’s Mansion, Parkshore, The Atria at Meyer, The Makena, The Meyerise and Tanjong Ria Condominium.

When Amber Park first came up for collective sale two years ago, the market was very subdued, says Kwek. “It would not have been the right time to bid for it, especially considering the tight time pressure to achieve a full sellout imposed by the ABSD [additional buyer’s stamp duty] and QC [qualifying certificate] penalties. Sales momentum at launch is very important for achieving overall sales success and buying now, when the sentiment is good, makes more sense.”

‘Cautiously optimistic’

The Singapore property market is seeing improved sentiment and increased activity after several years of subdued market conditions and macroeconomic headwinds. URA’s flash estimate has also shown the first rebound in the property price index after 15 consecutive quarters of decline.

Kwek, however, says, “I remain cautiously optimistic that this momentum will gradually strengthen and turn into a sustainable recovery.” This is because the cooling measures are still firmly in place, he points out.

While residential prices are likely to increase, given the prices that many developers (including CDL) have paid for land acquired via Government Land Sales and private en bloc tenders, “I do not believe we are in the ‘golden age’ of runaway prices experienced in the past”, says Kwek.

Kwek: Disruption has become the norm in many sectors, including the real estate industry. There are opportunities for companies to partner with and integrate into new-economy platforms.

In the past, the government’s priority was to encourage growth in home ownership and have Singaporeans feel they have a stake in the country; as a result, rising home prices were a huge incentive for people to own property, says Kwek. “The emphasis in the current generation of leadership is transitioning Singapore into a knowledge-based, innovation- driven society, therefore stable and affordable home prices are key considerations,” he adds.

Sustainability, Green bonds

Another key trend that CDL has been at the forefront of is sustainable development and socially responsible investment. “The government’s target of greening at least 80% of the country’s building stock by 2030 could be the linchpin of the nation’s climate pledge to reduce its greenhouse gas emissions,” says Kwek. “Hence, there is potential for greater adoption of green building design and innovation to enhance the environmental performance and financial value of buildings.”

The government is also increasingly taking steps to match the demand for sustainable investments and to nurture green finance. The Monetary Authority of Singapore announced a Green Bond Grant scheme to incentivise the issuance of green bonds. CDL became the first Singapore-listed company to issue a two-year Green bond at 1.98% in April.

“As Singapore’s pioneer property developer, CDL has built a strong track record of quality, innovation, design excellence and sustainability,” says Kwek. “It was hard to get everything right over the past 54 years. We will strive for continuous improvement by measuring our projects against top-notch industry benchmarks as well as listening closely to customer feedback. CDL was founded in 1963, and was listed on the Singapore Exchange a year later.

Kwek intends to have the group embrace “a more entrepreneurial and nimble culture” that will foster greater creativity, innovation and ownership among the staff. “This will ensure we stay relevant in this age of disruption and continue to produce sought-after products,” he says.

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