BlackRock bets on serviced apartments in Singapore; life sciences in Australia
By Nicholas Lam
/ EdgeProp Singapore |
It was reported that BlackRock acquired Citadines Raffles Place for $290 million in a joint venture with YTL Hotels (Photo: Samuel Isaac Chua / EdgeProp Singapore)
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New York-headquartered BlackRock is eyeing its third and latest acquisition in Singapore this year. The world’s largest asset manager is in talks to acquire Citadines Raffles Place for $290 million. The acquisition is rumoured to be a joint venture with YTL Hotels, the hospitality arm of Malaysian conglomerate YTL Corp, controlled by its CEO Francis Yeoh, one of Malaysia’s 10 richest.
The 299-room Citadines Raffles Place opened in October 2022 and is managed by Ascott, the hospitality arm of Singapore’s CapitaLand Investment. Citadines Raffles Place is the serviced apartment component of the CapitaSpring mixed-use commercial complex, which includes a 51-storey Grade-A office tower, F&B, retail space and a hawker centre.
Located at 88 Market Street in the heart of Singapore’s financial district, CapitaSpring is a redevelopment of the former Golden Shoe Carpark. Completed in November 2021, CapitaSpring was developed by CapitaLand Integrated Commercial Trust (CICT), CapitaLand and Mitsubishi Estate Co in a 45:45:10 joint venture.
BlackRock and YTL intend to repurpose the property to be more hotel-like to allow single-night stays. In Singapore, serviced apartments require a minimum stay of seven days. Properties such as Ascott Raffles Place, which has a hotel licence, can be rented out daily.
Serviced apartment portfolio in Singapore
“For Singapore, we’re primarily focused on service apartments with a high level of amenities and shared facilities on the lower floors,” says Hamish MacDonald, BlackRock chief investment officer for Asia Pacific Real Estate, in a media briefing last month. “Typically, they’re also in locations that are attractive to tourists.”
In February, BlackRock partnered with Hong Kong-based co-living provider Weave Living to acquire Citadines Mount Sophia, a serviced residence located at 8 Wilkie Road, for $148 million. Citadines Mount Sophia is part of the mixed-use Wilkie Edge, which also features a retail podium and several floors of office space. The property is undergoing renovations and is slated to reopen next year as Weave Suites, Weave Living’s premium serviced apartments brand.
In February, BlackRock partnered with Weave Living to acquire Citadines Mount Sophia for $148 million (Photo: Samuel Isaac Chua / EdgeProp Singapore)
According to MacDonald, the firm’s wider investment strategy for the region is mostly in line with other global investor sentiments. “There’s a clear movement away from the traditional office and retail sectors and towards logistics, living and life science sectors.”
A common dilemma for global investors like BlackRock — which has total assets under management of US$11.5 trillion ($15.05 trillion) as of Oct 11 — is acquiring assets on a large enough scale. “Global investors see Asia Pacific real estate as a ‘diversifier’ to a global portfolio,” says MacDonald. Consequently, most investors focus on the most transparent and liquid markets in the region, such as Japan, Australia, New Zealand, and Singapore, he adds.
To overcome this, MacDonald and his team are deploying an aggregation strategy of buying more smaller assets.
Opportunistic buy
At the start of 2024, BlackRock acquired Blackstone’s stake in The Residences at W Singapore Sentosa Cove for the equivalent of $1,200 to $1,300 psf.
Blackstone’s Tactical Opportunities Fund invested $367 million in City Developments’ (CDL) novel $1.5 billion profit participation securities (PPS) scheme in December 2014. Besides Blackstone, CDL’s wholly-owned subsidiary Astoria Holdings invested $281 million, and CIMB Bank contributed $102 million towards the $750 million offering of investment securities. DBS Bank and Oversea-Chinese Banking Corporation (OCBC) provided $750 million in value of senior loan facilities back in December 2014.
BlackRock acquired a stake in The Residences at W Singapore Sentosa Cove for the equivalent of $1,200 psf to $1,300 psf (Photo: Samuel Isaac Chua / EdgeProp Singapore)
Investors in the PPS received a 5% coupon rate and dividends based on cash flows from three properties at The Quayside Collection: The remaining 203 units are at the 228-unit The Residences at W Singapore Sentosa Cove, the 240-room W Singapore — Sentosa Cove, and the Quayside Isle waterfront commercial complex. Cityview Place Holdings, an associate company of CDL, held these properties.
The PPS had a five-year tenor at the end of which the assets would be sold. In November 2019, CDL Hospitality Trusts purchased The W Singapore — Sentosa Cove for an undisclosed sum.
In December 2014, CDL projected that the units at The Residences at W Singapore Sentosa Cove could be sold at prices from $2,400 psf at the end of the five-year tenor.
On Apr 15, however, Cityview Place Holdings released 58 of the 203 units at The Residences W Singapore Sentosa Cove at prices starting from $1,648 psf, which is about 40% below the average sale price of $2,736 psf during the initial launch over a decade ago.
Since the relaunch, 78 units at The Residences W Singapore Sentosa Cove have been sold at an average price of $1,796 psf, based on caveats lodged. Singaporeans and permanent residents comprised 94% of the buyers, with foreigners from China, France and the US making up the remaining 6%.
Hence, BlackRock’s purchase price of $1,200 to $1,300 psf at the start of the year proved to be astute.
MacDonald: For Singapore, we’re primarily focused on service apartments with a high level of amenities and shared facilities on the lower floors
Growing life sciences portfolio Down Under
In Australia, BlackRock is in the process of acquiring its first portfolio of biomedical and life sciences properties. Over the next 18 months, it plans to grow its portfolio of assets in the sector to between A$1 billion ($886 million) and A$1.5 billion ($1.32 million).
The global investment giant has mapped out the Australian life sciences real estate market over the last five years by tracking tenant movement. “We focused our location choices by tracking tenants,” says Ben Hickey, BlackRock’s head of real estate for Australasia. “Rather than being told that a location is a great life science cluster, we follow the tenant demand and cross-check by speaking to tenants.”
From there, it has identified an “off-market” pipeline of existing laboratory and R&D assets, where the high-interest rate environment of the past two years has placed asset owners under significant pressure. “We can buy these assets at good prices now because asset owners need liquidity,” says MacDonald.
Aggregating a portfolio of small assets can be tedious. “We’re the ones that are rolling up our sleeves and taking the time to do that,” adds MacDonald. “Asset management and enhancement initiatives need to be done; leases need to be extended.”
However, BlackRock believes such assets will maintain high occupancy levels, ensuring income stability over the long term. “These occupiers want long tenures and lease security because they’ve invested so much capital into these premises. Their biggest concern is a sub-five-year lease,” MacDonald explains. “Our business plan for these assets is to extend leases and review rents.”
Hickey: Rather than be told that a location is a major life science cluster, we follow the tenant demand.
Growth in life sciences sector
The life sciences industry in Australia has grown by over 40% in five years since 2019. According to a CBRE report published in September, Australia’s national healthcare spend was A$260 billion in 2023. It is estimated to grow by 3.5% annually over the next five years, outpacing the country’s GDP forecast.
Growth in life sciences in Australia has been partly fuelled by an influx of government incentives to further develop the sector following the Covid-19 pandemic. Private sector growth has magnified the demand-supply gap.
“Many of the top 20 pharmaceutical brands perform clinical trials in Australia because of the country’s diverse population base,” MacDonald adds. Therefore, Australia faces a supply crunch of high-specification laboratory spaces, ranking it among the top asset classes that funds want to invest in.
BlackRock will focus on acquiring high-quality laboratory properties in existing life sciences clusters. They include Macquarie University in the Macquarie Park precinct and the Camperdown health, education and innovation precinct in Central Sydney.
“What we’ve learned globally is that being located in these life science clusters is critical because of your co-location with hospitals, universities and residential populations,” says Hickey.
Starting real estate portfolios from scratch
It is not the first time that BlackRock has developed an investment product for its clients from scratch. In 2020, BlackRock began assembling a portfolio of last-mile logistics space in Australia after observing strong rental growth in the UK’s last-mile logistics sector. It started with an A$20 million acquisition in Lane Cove, a suburb on Sydney’s lower north shore.
In November 2021, BlackRock also teamed up with Melbourne-based private equity real estate company NashCap (renamed Wentworth Capital in November 2022) to acquire over 8.6 million sq ft of freehold industrial space estimated to be worth over A$1 billion (about $886 million). “That is now Australia’s largest pure-play last mile logistics platform,” says Hickey.
Another sector that BlackRock invested in Down Under was childcare centres. In October 2021, BlackRock struck a joint venture with Sydney-based Federation Asset Management to acquire eight early childhood education centres worth $75 million. Like life sciences, these childcare centres have government-backed cash flow and long lease terms. “We look at childcare centres as a core product because the rental renewals are pegged to inflation, and hence, it’s a natural hedge,” says Hickey. “That portfolio is now Australia’s largest private childcare portfolio.” BlackRock’s childcare portfolio has grown to over 65 centres with total assets worth A$500 million.
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