Hmlet exits Lumiere on Shenton Way; lease terminated
By Cecilia Chow
/ EdgeProp Singapore |
SINGAPORE (EDGEPROP) - This year, Covid-19 has decimated demand for flexible accommodation, even as leading Singapore co-living operator, Hmlet continues to expand its footprint both locally and elsewhere in the region. Co-living accommodations and private condominiums have seen occupancy hit by the departure of expatriates who lost their jobs due to the worsening business climate. Covid-19 travel restrictions have also prevented the arrival of new expatriates to Singapore.
Developed by BS Shenton, Lumiere on Mistri Road, off Shenton Way, has 168 units and was completed in 2010 (Photo: Albert Chua/EdgeProp Singapore)
With most companies adopting work-from-home policy, co-living accommodation in CBD locations has suffered sharper declines in occupancy rates compared to those in the city fringe. Hmlet’s properties have been similarly affected.
Read more: Co-living gains traction in Singapore
One of its properties, Hmlet Lumiere on Shenton Way, is no longer listed on its website, although it is still on the Hmlet Listed platform, as at Nov 25. The company, Hmlet Services Pte Ltd (formerly known as Hmlet Residences Pte Ltd), had applied for creditor’s voluntary liquidation, according to a Nov 16 filing to the Accounting and Corporate Regulatory Authority (Acra).
When contacted, Yoan Kamalski, CEO of Hmlet, confirmed that Hmlet Services Pte Ltd was the company that had signed a master lease with BS Shenton, the entity that owns the apartments at Lumiere, which were managed and operated as co-living spaces under Hmlet Lumiere. “We were engaged in months of negotiations with the landlord, and were unable to reach a mutual arrangement to move forward,” says Kamalski in an email response to questions from The Edge Singapore.
BS Shenton is the company that developed the 168-unit, 45-storey Lumiere apartment tower on Mistri Road, off Shenton Way, which was completed in 2010. While the units on the lower floors of the tower have been sold over the years, BS Shenton has held the remaining 43 units from the 34th to 45th floors for investment. It is also a subsidiary of property development firm, BS Capital, founded by Raymond Ng. He is also the executive chairman of Enviro Hub, a Singapore-listed company with a wide spectrum of businesses — from trading to recycling and electronic waste refining business.
A one-bedroom apartment at Hmlet Lumiere starts from US$3,400 a month (Photo: Albert Chua/EdgeProp Singapore)
Seeking rental relief
Hmlet Services is said to have signed a five-year master lease with BS Shenton, for the period of March 15, 2019, to March 14, 2024, where it will manage and lease out the 43 units at Lumiere as co-living spaces. The rental rate is believed to be $170,000 a month or $2.04 million a year. Hmlet in turn leases out the fully-furnished bedrooms or apartments for a minimum of three months. A one-bedroom apartment starts from US$3,400 (about $4,560) a month.
In a series of email exchanges gleaned by The Edge Singapore, Hmlet had repeatedly asked its landlord BS Shenton for rental concessions in view of the deteriorating business conditions. In the midst of a two-month-long Covid-19 “circuit breaker”, Hmlet had appealed to BS Shenton for a 25% rental concession at Lumiere for the three months from May to July.
On April 18, Hmlet said that there had been “an increase in termination across our portfolio, with our CBD properties suffering the worst im- pact”. Occupancy at Hmlet Lumiere had fallen from 93% in January to 67% in April, according to the email. The co-living operator added that it expected more tenants to move out in the subsequent months due to termination of their local employment contracts.
As residential property landlords did not receive any temporary relief from the government — unlike landlords of commercial property — BS Shenton said it was unable to offer any relief to Hmlet. Instead, it proposed a rental deferment of 10% for the three months from May to July, to be repaid over a six-month period from November 2020 to April 2021.
Kamalski: In our line of business, exiting buildings is an ordinary course of business as we constantly assess and evaluate the performance of properties in our portfolio (Photo: Samuel Isaac Chua/EdgeProp Singapore)
On Aug 5, Hmlet sent a letter requesting for a further rental deferment as “the global pandemic situation shows little signs of easing off both domestically and internationally”, hence its business “is still severely impacted”.
It proposed a 15% rental deferment for six months from July 2020 to January 2021. How- ever, it will repay the deferred rent over a three-month period from January to April. There was no response from its landlord, BS Shenton.
The break-up
Hmlet is “exiting the building and closing the company on our Acra filing”, says Kamalski. “In our line of business, exiting buildings is an ordinary course of business as we constantly assess and evaluate the performance of properties in our portfolio,” he adds. “We are deeply disappointed with the situation and the lack of resolution despite our best efforts, but look forward to focusing on the rest of Hmlet’s businesses.”
BS Shenton’s Ng is believed to be taking back the units that have been vacated, and considering turning them into show units, before putting them up for sale.
Within the portfolio are 32 studios and one-bedroom units (624 to 678 sq ft), eight 2-bedroom units (980 to 1,001 sq ft), two 3-bedroom duplex apartments (2,325 and 2,551 sq ft) and a four-bedroom penthouse of 5,091 sq ft.
The 43 apartments at Lumiere were converted into more than 60 co-living spaces under Hmlet Lumiere (Photo: Albert Chua/EdgeProp Singapore)
Things could not have been more different last year. Having secured Hmlet as the master tenant for the 43 units, Ng had offered the entire portfolio of units at Lumiere for sale at a price tag of $93 million. He is now looking to sell the units individually instead. He has declined to comment for this article. Samuel Eyo, managing director of Lighthouse Property Consultants, the property agent that brokered the tenancy, has likewise declined to comment.
For Hmlet, securing two significant properties in the CBD last year was a major coup. Besides Hmlet Lumiere at Shenton Way, with more than 60 rooms that opened in March last year, the second property was the 150-room Hmlet Cantonment, which opened in September 2019. It occupies the entire 1950s heritage building on Cantonment Road in the Tanjong Pagar area, and remains Hmlet’s largest co-living property to date.
The master lease for Hmlet Cantonment was signed with LHN Group, which is part of Singapore-listed property management services firm. The property was refurbished at a cost of $5 million, by a joint venture between Hmlet and LHN Facilities Management, an in- direct subsidiary of LHN Ltd.
Unlike the other Hmlet properties which are residential, and therefore have a minimum lease of three months, Hmlet Cantonment has a serviced apartment licence, and can there- fore be leased out for short-term stays of at least seven days. It is the only serviced apartment property that the group has in its portfolio, says Kamalski.
Hmlet Cantonment, with 150 rooms is the biggest property in Hmlet's portfolio and the only one that operates as serviced apartments (Photo: Albert Chua/EdgeProp Singapore)
Regional expansion
Having streamlined its portfolio, Hmlet added 80 rooms across several heritage HDB flats in Tiong Bahru in February this year. Another 12 rooms in Emerald Hill were launched in June, bringing the tally to 48 properties with over 1,000 rooms in Singapore.
It opened five new properties in Tokyo with a total of 168 rooms in June. In partnership with Mitsubishi Estate Residence, it intends to expand to other major cities beyond Tokyo, such as Yokohama and Osaka.
In September, it announced that it is adding 2,500 rooms in Thailand, and 1,000 in Malaysia. By end-2020, Hmlet will be running 5,000 rooms under its co-living brand across Southeast Asia.
Hmlet has been able to continue its regional expansion plans after successfully raising US$40 million ($53.6 million) in its Series B funding round in July 2019, with Burda Principal Investments, the growth capital arm of German media group Herbert Burda Media, as the lead investor. Joining Burda was existing investor Sequoia India, the India affiliate of US venture capital firm, Sequoia Capital. Sequoia India was the lead investor in Hmlet’s Series A funding, which raised US$6.5 million in November 2018. Three new investors in the Series B funding round were corporate venture capital Reinventure Group; Mitsubishi Estate, one of Japan’s largest real estate developers; and Singapore-based, venture debt firm, Genesis Alternative Ventures.
Co-founders Kamalski and Zenos Schmickrath (left), back in 2018 when they first opened Hmlet @ Sarkies (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Co-founded in 2016 by Kamalski and Zenos Schmickrath, Hmlet raised seed capital of US$1.5 million from Aurum Investments, a venture capital fund, wholly owned by Aurum Land, which is led by Michelle Yong. Au- rum Land is the property development arm of giant, family-owned, construction firm, Woh Hup. Co-founder Schmickrath left Hmlet last December when the company underwent a strategic overhaul, but remains a shareholder.
Switch to asset-light strategy
In the past, Hmlet had taken up master leases in entire buildings or for a portfolio of units owned by a single landlord. This included Hmlet @ Joo Chiat, a building in East Coast that is owned by listed property group Oxley Holdings; and Hmlet @ Sarkies, in the Bukit Timah-Newton area, where it leased the entire building from Indonesia’s Pangestu family’s ANB Investment.
“Our other properties are operationally healthy, and we are seeing a positive uptake in demand across all our Hmlet offerings,” says Kamalski.
The firm continues to partner landlords, via leasing, profit-sharing or the use of management contracts, he adds. “Hmlet regularly communicates with its landlord partners who have been extremely supportive during the pandemic, for which we’re very grateful.”
This year, Hmlet has adopted an asset-light strategy. In July, it announced the launch of its own listing platform Hmlet Listed, to allow landlords to list their properties and secure tenants without the need of an agent. The co-living operator also expanded its offerings to include furniture rental subscriptions through Hmlet Furniture and interior design services through Hmlet Interiors.
“The new services will help to serve more customers and complement our other offerings,” says Kamalski. They are driven by the “huge opportunity to digitise real estate to adapt to the current market environment”, he adds.
Showroom of Hmlet Interiors, an interior design service offered to homeowners and developers (Photo: Hmlet)
Consolidation to intensify in co-living sector
The fallout between Hmlet and BS Shenton at Lumiere is just the latest sign of the damage wrought by the pandemic and recession on the residential leasing market, including the co-living sector.
“Business restructuring, retrenchments and pay cuts have led to some tenants relocating or downsizing from their existing accommodation,” says Ong Teck Hui, JLL senior director of research and consultancy. “Some consolidation in the co-living sector is expected, given current weak leasing demand and on-going border restrictions.”
One of the main draws of co-living is its short, flexible leases; and that has also turned out to be “one of the risk factors in its business model”, observes Ong. “Co-living opera- tors often sign long-term leases with landlords, but earn their revenues through shorter-term rental agreements,” he says.
“With the recession and weak demand from tenants putting pressure on co-living operators’ revenue streams, switching to a more asset-light model can help the operator to alleviate cash- flow issues,” adds Ong. “So instead of renting, renovating and operating properties, co-living operators can provide a platform for landlords to list their properties with them to manage. The move towards management contracts or profit-sharing contracts could be more sustainable in the longer term.”
Rising vacancy rates due to the economic downturn and increase in completed supply over the next few years is another area of concern, according to JLL's Ong (Photo: Samuel Isaac Chua/EdgeProp Singapore)
Concerns about infection from Covid-19 and safe distancing measures could prompt some co-living tenants to move to traditional residential accommodation, says Ong. But the flexible leases offered by co-living may work better for some tenants who have concerns over job uncertainties, he points out. “Location is still an important factor in securing tenants, whether in traditional leasing or co-living. Units near MRT stations and amenities continue to have a competitive advantage over those in mediocre locations,” he adds.
Rising vacancy rates due to the economic downturn and increase in completed supply over the next few years is another area of concern, Ong notes. In 3Q2020, vacancy rate in the Core Central Region rose to 9.2%, up from 7.5% in 2Q2020. The vacancy rates in the Rest of Central Region and Outside Central Region stood at 7.4% and 4.2% respectively in 3Q2020, according to URA.
“Although the economy is expected to recover in 2021, business conditions could still be challenging and the policy control on intake of foreign workers is likely to remain tight,” comments Ong. “Therefore we can expect a competitive leasing market which could put further pressure on landlords as well as co-living businesses in the short to medium term.”
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