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A plus if Golden Shoe project includes serviced residences

Redevelopment project needs to build more than just office space


Six weeks ago, CapitaLand Commercial Trust (CCT) made the highly-anticipated announcement that it is seeking approval from the Government to redevelop its Golden Shoe Car Park in Raffles Place.

The real estate investment trust (Reit) said the redevelopment could potentially create commercial gross floor area of about 1 million sq ft and have an office tower of up to 280m above ground - on par with the tallest buildings in the Central Business District.

CCT targets commencing the redevelopment by the second half of next year. The new project is slated for completion in 2021.

"The trust will evaluate appropriate investment and funding structures including a joint venture and sale of existing asset," CCT said in its Oct 19 news release.

It would not be surprising if CCT enters into a joint venture for the redevelopment with, say, its parent CapitaLand, and perhaps even an external investor.

This would be similar to the arrangement CCT had embarked on for the $1.3 billion redevelopment of the former Market Street Car Park into CapitaGreen - it had partnered CapitaLand and Mitsubishi Estate Asia.

On Aug 31, CCT bought back the 60 per cent stake in the completed development from its two partners.

For the Golden Shoe project, assuming CCT is looking for co-investors, they may be wary of office oversupply.

Some office landlords have been talking enthusiastically about the current wave of new office completions easing in 2019. This is correct, but may be a short-term phenomenon.

A new wave of office completions is poised to manifest from 2020, including the redevelopment of the CPF Building in Robinson Road; IOI Properties' mega office project on the Central Boulevard site it recently clinched; and of course, CCT's Golden Shoe redevelopment.

To assuage office oversupply worries on the part of a potential investor/joint-venture partner for the Golden Shoe project, it could make sense for CCT to mint less office space in the proposed development.

One can expect the development to have a small retail component for sure.

Beyond that, what other uses could CCT inject into this project, which is poised to rejuvenate this part of the Raffles Place financial district?

CCT could include some apartments for sale, but this may be challenging given that the site has a balance lease term of only 64 years. A lease top-up to 99 years is unlikely.

Moreover, CCT would face competition from sales of CBD apartments in other projects such as GuocoLand's Tanjong Pagar Centre and M+S's Marina One.

HOTEL COMPONENT

CCT could take a leaf from Guocoland's project and introduce a hotel component or incorporate some serviced residences. This would be right up the alley for The Ascott Limited, the fully-owned serviced residences arm of CapitaLand.

The group's serviced apartment Reit, Ascott Residence Trust (ART), owns the 146-unit Ascott Raffles Place Singapore.

That may not be enough, as the group may be eyeing a bigger market share in the CBD vis-a-vis its rivals.

OUE, for instance, will be introducing serviced residences as part of its OUE Downtown project along Shenton Way.

Furthermore, by carving a serviced residence component in the Golden Shoe project, CapitaLand would extend the potential acquisition pipeline for its sponsored-Reit ART.

After the project is completed, and income from the serviced residence component has stabilised, it could be offered for sale to ART in a familiar play of asset recycling and monetisation that is a trademark of the group.

Even after the serviced residences have been sold to ART, CapitaLand's The Ascott Limited can continue to manage the asset and further boost its recurring fee income base. There are also synergies to be tapped within a mixed development.

Tenants of the Grade A offices of the Golden Shoe project may conveniently accommodate their visiting staff, and executives and business partners from overseas in the serviced apartments.

A potential external co-investor may be more comfortable with a mixed-use scheme such as this to contain a potential office overexposure risk.

CCT's parent CapitaLand too would find that participating in such a project creates positive spin-offs for two of its Reits and the group as a whole.

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