SLB Development enters fund management; bullish on co-living, industrial space

/ EdgeProp Singapore |

July 2, 2020 6:00 AM SGT

The mood in the current property market is one of change. Matthew Ong, CEO of Singapore-listed property developer SLB Development, has been confronted with that reality even in his own home. “Before, it was just a home; now it’s a childcare centre, restaurant, office and home all rolled into one,” he says. “Covid-19 has changed how I view my own house.”

Ong: We hope that the fund management business will help in terms of providing greater stability of income. But deep down in our hearts, we are still developers (Photo: Albert Chua/EdgeProp Singapore)

That “plus-study”, which usually refers to a room that is a tad smaller than a regular sized common bedroom in most condominium units, has suddenly regained its usefulness as a home office, with most people having to work from home (WFH) during the circuit breaker over the past 2½ months.

There is a need to cater for more well-designed spaces, notes Ong. “As a developer, we have to look at the optimal number of units that can be built on a site,” he says. “But we will focus on redefining the layout of the condominium units, to have more adaptable spaces, for instance, a dining area that can be converted into a workspace.”

During the circuit breaker, the study became a very important space in most apartments and condominiums when people had to work from home (Photo: Albert Chua/EdgeProp Singapore)

While SLB is still interested in developing residential projects, Ong is holding off any land purchases for the time being, until “land bid prices come down to levels that we can underwrite for a longer selling period”.

In the past, most developers aimed to sell all their units, preferably within the first weekend of launch, Ong relates. “But now, our runway to sell out projects is longer —until just before obtaining TOP [temporary occupation permit].” The low interest rate environment is helping both developers and home buyers in terms of interest cost, he notes.

He does not anticipate a major correction in the residential market as new project sales are still “healthy”. SLB is part of a consortium led by Oxley Holdings in two mega residential developments, namely the 1,052-unit Affinity at Serangoon (the former Serangoon Ville) and the 1,472-unit Riverfront Residences (former Rio Casa) at Hougang Avenue 7. Since the two projects were launched in the second half of 2018, Affinity at Serangoon is over 70% sold and Riverfront Residences is close to 90% sold, based on caveats lodged to date. “It may be slower but fundamentally, our residential sector has been very stable,” notes SLB’s Ong.

SLB is part of the consortium that is developing the 1,472-unit Riverfront Residences, which is close to 90% sold to date (Photo: Samuel Isaac Chua/EdgeProp Singapore)

‘Purpose-built co-living’

A segment of the residential sector that Ong is interested in is co-living. On June 24, fund management platform 32 Real Estate (32RE) and an associate company of SLB subscribed to a $150 million equity in a joint venture with Hong Kong-based Weave Co-Living, to acquire, develop, refurbish and operate co-living and rental accommodation assets in Singapore under Weave or its affiliated brands.

Weave has an 80% stake in the joint venture, with 32RE holding the balance. While Weave will be responsible for the day-to-day operations of the co-living assets in Singapore, 32RE, given its local market knowledge and network, will be instrumental in acquiring suitable assets.

“We see co-living as a subset of the residential asset class,” says Jeremy Choy, CEO of 32RE. “It’s very difficult for a foreign corporate buyer to invest in the residential sector. That’s why we are looking at hotels, serviced apartments and properties with commercial zoning that foreigners can buy, and converting them into co-living assets.” This is because foreign corporate entities buying residential assets will be subjected to a 25% additional buyer’s stamp duty and the borrowing limit has been capped at 15% loan-to-value ratio.

SLB's associate company and fund management firm, 32RE, subscribed to a $150 million equity in a joint venture with Hong Kong-based Weave Co-Living, to acquire, refurbish and operate co-living and rental accommodation in Singapore under the Weave brand (Photo: Weave)

According to Choy, 32RE is adopting a “value-add” strategy rather than pursuing a development or redevelopment project simply because it will take two to three years to complete, which is “a bit too long”. He says: “We are looking at acquiring existing assets, refurbishing and repositioning them, and bringing the Weave product to the Singapore market in six to nine months.”

What Covid-19 has shown is that co-living assets have to be “purpose-built”, says SLB’s Ong. While there is a need for private space and safe distancing, a lot of people in big cities have to deal with loneliness, especially those who are new to the city, he says. “So we still need to cater for the needs of these residents, in terms of communal spaces for work, recreation and social interaction with other residents,” adds Ong. Incidentally, SLB has a 33.33% stake in 32RE (see story, “New property fund manager 32RE plans to focus on co-living, HNW investors and family offices”).

Wee Teng Chuen (left) and Jeremy Choy of 32RE, who are partners together with SLB Development in the fund management firm (Photo: Samuel Isaac Chua/EdgeProp Singapore)

‘Living sectors’ in the UK, fund management

Besides 32RE, in June, SLB also subscribed to a 20% equity stake for £90,000 ($155,275) in Pinnacle Investment Management Ltd (PIML), a fund management subsidiary of UK-based Pinnacle Investments (Holdings) and Pinnacle Group. The fund manager is planning to build a series of funds focused on the private rented sector (PRS) across the UK.

Last September, SLB had already made a maiden investment of £2 million into Pinnacle Residential Fund, a UK residential fund managed by PIML. The fund is targeted at the “living sectors”, which are properties that provide different types of accommodation and tenures for various needs and stages of life. Hence, Pinnacle Residential Fund’s strategy is to acquire a portfolio of private rented flats and houses across the UK, targeting areas where there is a mismatch in supply and demand but demonstrate good economic growth prospects.

“Despite uncertainties from the ongoing Covid-19 pandemic and outcome of Brexit, we remain optimistic about the housing market and investment demand in the UK, especially in the long term,” comments SLB’s Ong. “The UK PRS, backed by strong fundamentals underpinned by demographic growth and favourable supply-demand dynamics, has been a steady source of income even in tough times.”

Private rented flats and houses in the "Living Sectors" targeted by Pinnacle Residential Fund managed by Pinnacle Investment Management (Photo: SLB)

SLB ventured into the fund management business last September, first with its investment into Pinnacle Residential Fund in the UK, followed by the inception of 32RE in October.

He is anticipating that within the next three to five years, the fund management business will contribute between 20% and 30% of SLB’s bottomline. “We hope that the fund management business will help in terms of providing greater stability of income,” says Ong. “But deep down in our hearts, we are still developers.”

He sees opportunities for growth in the “living sectors” in the UK, and the co-living segment in Singapore. “Covid-19 changed the way people live and work,” says Ong. “Most developers will have to think of including workspace as one of the facilities within a condominium project.”

SLB subscribed to a 20% equity stake in Pinnacle Investment Management Ltd, a fund management subsidiary of UK-based Pinnacle Investments (Holdings) and Pinnacle Group, which is managing The Residence, Bedford (Photo: SLB Development)

Office, mixed-use developments to stay relevant

Consequently, mixed-use developments will stay relevant, reckons Ong. So will the office sector, despite the WFH phenomenon across the globe. And it is a sector that 32RE is interested in exploring. “There has been quite a lot of debate about whether Covid-19 will spell the end of the office sector,” says 32RE’s Choy. “But we are of the belief that the office sector in Singapore will endure, and so we are also looking at opportunities in that space.”

No doubt, there are office-occupiers giving up some of their office spaces when their leases are up for renewal. “It’s mainly driven by business conditions, and it’s across all sectors from oil and gas, banking and finance, and FMCG [fast-moving consumer goods],” says Michael Tay, CBRE head of capital markets for Singapore. However, some of these decisions to reduce space requirements are also driven by space efficiency, he points out.

For instance, in the midst of Covid-19, an automobile company that had previously occupied 40,000 sq ft elsewhere moved to Guoco Tower in Tanjong Pagar, where it has taken up 33,000 sq ft. Meanwhile, an insurance company that had 40,000 sq ft of office space before, recently leased 27,000 sq ft at Guoco Tower. “Besides reduction of occupancy cost, these decisions were also driven by a desire to achieve higher efficiency in the use of office space,” says Tay. “Guoco Tower at Tanjong Pagar is a new, premium-grade office tower, and it’s surrounded by amenities and linked directly to Tanjong Pagar MRT Station.”

in the midst of Covid-19, an automobile company that had previously occupied 40,000 sq ft elsewhere moved to Guoco Tower in Tanjong Pagar, where it has taken up 33,000 sq ft. An insurance company that had 40,000 sq ft of office space before, recently leased 27,000 sq ft at Guoco Tower (Photo: Darren Soh)

Tay is expecting to see office rents correct by at least 3% q-o-q from 1Q2020 to 2Q2020. CBRE’s projection is for office rents to correct by 13% for the full year.

Increase in demand for industrial space

Besides office, SLB’s Ong is optimistic about industrial space, because he saw a 15% to 20% increase in enquiries for units at InSpace, a freehold, 84-unit, strata industrial building that previewed last year. The project is a redevelopment of the former Pei Fu Industrial Building and is a 51:49 joint venture between SLB and Oxley Holdings.

“As these industrial units can’t be used as an office, some companies are considering using them as back offices and storage space for their office documents,” says Ong. “This allows them to achieve cost savings by reducing their office space use in the CBD.”

All the 28 strata units at SLB’s MacTaggart Foodlink were taken up recently and the project is now fully sold (Picture: SLB Development)

With the rise in e-commerce over the past few months, more retailers are also looking at increasing their online presence, and hence there has been a corresponding increase in demand for warehouse space to store their goods.

“The interesting thing is, I actually sold more units of warehouse space during Covid-19 than during the months leading up to Chinese New Year,” Ong says.

He adds that all the 28 strata units at SLB’s MacTaggart Foodlink were taken up recently. This is because during the circuit breaker, F&B operators could only do food delivery or takeout. As such, some of the big restaurant chains are now considering taking up industrial space to house a central kitchen and consolidating the number of their outlets. “Unfortunately, I ran out of space at MacTaggart Foodlink,” laments Ong. “Because of that, I’m actually quite bullish about the industrial sector.”

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