CCT – BT

Shimmering with x number of car lots

$1.4b tower coming up on historical parking site; unclear how many lots it will have but a survey finds sufficient parking space in vicinity

CapitaCommercial Trust (CCT) is joining hands with its sponsor CapitaLand to redevelop the historical Market Street Car Park (MSCP) for an estimated $1.4 billion, or $1,900 per square foot of net lettable area (NLA).

The new 245-metre building looks set to stand out. What is unclear though, is the number of parking lots it will provide when the 704 lots at MSCP are gone.

CCT unveiled the redevelopment proposal yesterday with its first quarter results. This is what the market can expect by end-2014: an ‘ultra-modern’ Grade A office tower designed by renowned Japanese architect Toyo Ito, with a gross floor area (GFA) of some 887,000 square feet spread across an estimated 40 storeys.

The commercial real estate investment trust (Reit) is in discussions to form a joint venture with CapitaLand Commercial for the project. The former could hold a 40 per cent stake – translating to a capital commitment of $560 million.

CCT needs a partner because under official guidelines, the total contract value of property development activities and investments in uncompleted property developments undertaken by a Reit should not exceed 10 per cent of its total asset size. The Reit had $6 billion of assets as at March 31.

CCT had in early 2008 obtained outline planning permission for the redevelopment, but was forced to drop the project in 2009 because of the financial crisis.

Industry watchers have been expecting CCT to pick up from where it left off as it looks for ways to invest its cash hoard after selling two properties last year. Speculation heightened when it returned to the authorities and won provisional permission for the project.

CCT said that it recently received ‘an indication’ from the Singapore Land Authority on the differential premium (DP) payable for the change of land use. The DP makes up about 45-50 per cent of the total project cost of $1.4 billion.

MSCP’s site will be rezoned for commercial use subject to two conditions: CCT has to pay 100 per cent of the enhancement in land value as assessed by the Chief Valuer in a spot valuation, and there will be no extension of the existing land lease. The site has a remaining lease of 62 years.

CCT expects the new tower’s stabilised yield to exceed 6 per cent per year. Analysts from Standard Chartered forecast a 3-5 per cent accretion to distribution per unit in 2015, assuming rents reach $14 psf by then.

Lynette Leong, CEO of CCT’s manager, laid out the case for the investment: ‘Having considered the unexpired land lease, estimated project cost, potential office market rent and there being no other new Grade A office building completing in 2014 in the core Central Business District area, we believe that a Grade A office tower is the best use for the site.’

The estimated development cost of $1,900 psf of NLA ‘is considerably lower’ than recently transacted prices of Grade A office buildings, she added.

As at March 31, CCT had cash and cash equivalents of $448.5 million. Ms Leong said that it would be able to fund the redevelopment using internal cash resources and debt, keeping pro forma gearing below 31 per cent, which leaves room for other acquisition opportunities.

MSCP was built in 1964 and has 704 parking lots. Despite this, the supply of lots in the CBD is currently tight, said Colliers International director of research and advisory Chia Siew Chuin.

CCT is working with the authorities to determine the number of parking lots in the new building. Going by Land Transport Authority (LTA) rules for the zone that MSCP is in, it should have at least one lot for every 450 square metres of GFA. A rough calculation based on the building’s estimated GFA shows that there has to be a minimum of 184 lots.

LTA told BT that the new building’s design is being finalised, and that a recent survey showed that there are sufficient spare parking spaces in the vicinity within a 5-10 minute walk from MSCP.

‘With the improvement of public transport coverage in the CBD over the years, the need to rely on private transport to get into the CBD has gradually reduced,’ LTA said. ‘In 2013, when the DTL 1 (Downtown Line 1) is operational, there will be three new MRT stations within the CBD and Telok Ayer Station will only be about 100 metres from MSCP’s current location.’