Desmond begins to recoup investment in Damansara Heights

BY THEAN LEE CHENG

 

AT a time when the Klang Valley office space totals some 110 million sq ft, as at end-2013 going by the National Property Information Centre data, and against the backdrop of a softening property market, tycoon Tan Sri Desmond Lim Siew Choon (pic) is marketing office space on his Pusat Bandar Damansara (PBD) or Damansara Town Centre land for about RM1,500 per sq ft (psf), depending on floor location and other details.

With the private previews – which are by invitation only – Lim has effectively started the process of recouping his investment of more than RM1bil there.

Lim, 53, the executive chairman of Malton Bhd and chairman of Pavilion REIT, has 9.5 acres there and is in the process of buying a second parcel of 6.34 acres from Selangor Properties Bhd (SelProp), the original owner and developer of PBD.

Lim’s combined acreage is about 15.84 acres. SelProp still has two other plots, totalling 13 acres.

At RM1,500 psf, the rental for the PBD land will have to be at RM8 psf to generate an annual yield of about 6%. But this is the rental rate of offices in Kuala Lumpur City Centre (KLCC) – if they succeed in getting a tenant.

The rental rate at the Petronas Twin Towers is between RM12 and RM15 psf. Most PBD offices were going for between RM4 and RM5 psf prior to it being bought over.

As central and upmarket PBD may be, property consultants say it would be a wonder if Lim can pull this off.

But that was the general feeling among real estate professionals when he sold Pavilion Residences – on the same site as KL Pavilion – at RM1,000 psf back in 2006.

Property consultants then had thought he was asking too much because two years before that, in 2004, Binjai On-The-Park by KLCC Holdings Bhd was selling at about RM1,000 psf, and that development sits on a 50-acre park with an unobstructed view of the Petronas Twin Towers.

The sale of space in Pavilion has been a success for Lim.

Lim’s interest in PBD started years ago with 9.5 acres. The struggle for that prize led him into a legal battle with Johor Corp (JCorp), the state investment arm of the state of Johor.

The tussle was settled when JCorp and its companies exchanged that piece of land for RM500mil cash and 266,668 sq ft of future office space in PBD, in two portions of 186,667 sq ft and 80,000 sq ft.

JCorp subsequently exchanged that 186,667 sq ft of future office space, valued at RM140mil, for the existing V Square building and 964 parking bays (both built by Malton Bhd) in Petaling Jaya, while Malton got the rights to space equivalent to RM140mil in the redeveloped PBD.

A Sept 2, 2014 report by RHB Research said Malton has the option to sell the office space at PBD to Lim starting from RM825 psf to RM1,050 psf over a period of four years startomg from November 2014, which is about a month from today.

JCorp rights to 80,000 sq ft of office space in the redeveloped PBD remains. According to the same RHB report, given the RM140mil price tag for V Square, this implies a value of RM750 psf, which means that 80,000 sq ft tranche is worth RM60mil.

Second purchase

In March this year, Lim, via Jendela Mayang Sdn Bhd, struck again. This time, his interest was a 6.34-acre plot sited next to the former JCorp land. The proposal was to buy it off vendor SelProp at RM450mil, or RM1,628 psf. Jendela Mayang is linked to Lim.

On Tuesday, Sept 30, SelProp announced on Bursa Malaysia that several of its subsidiaries had entered into a sale and purchase agreement for the sale of that parcel with Jendela Mayang.

The land, previously used as a car park, had been independently valued at RM300mil, or RM1,086 psf. This means Lim is paying 50% more than its valuation.

In land valuation, there is this concept known as marriage value, says a source. The buyer is prepared to pay more than what the land is actually worth because this second parcel lies next to his first parcel. Combined, Lim will have a total of 15.84 acres, which will give him a lot more room to plan and manoeuvre.

Another more important factor has cropped up, and this involves public rail transport - connectivity and accessibility. The spectre of this smaller second piece of land being “a gateway” to his larger piece he got from JCorp has emerged. This second parcel will help to increase the value of whatever he is going to develop on his first parcel he had fought tooth and nail for with JCorp.

It will be “the gateway” to his first parcel because the PBD mass rapid transit or MRT station will be built at the Jalan Damansara-Jalan Johar-Jalan Bangsar intersection. It’s a brilliant coup for Lim.

A March 3, 2014 filing by SelProp said a subsidiary, which is the proprietor of this second parcel of land Lim is purchasing - Bungsar Hill Sdn Bhd - is undertaking to “design, construct an entrance portal which will enable the public to enter and exit” the PBD MRT station.

The agreement between Bungsar Hill and MRT Corp was signed on May 2, 2013. The subsidiary will also “design, construct and provide layby facilities for buses, taxis and private vehicles” and also “design, construct and provide parking facilities for motor vehicle(s), motorcycle(s) and bicycle(s)” on this second parcel that Lim wants to buy.

The second purchase, with its connection to the PBD MRT station, will help to improve the value of the former JCorp land, which he is roughly expected to fork out – on a give and take basis – about RM770mil for. This comprises the cash payment of RM500mil to JCorp, an asset swap worth RM140mil, RM60mil of office space for JCorp at RM750psf, and between RM40mil and RM50mil to about 20 owners of the PBD space.

Together with this second purchase of RM450mil – pending the go-ahead by MRT Corp – he is expected to fork out more than RM1bil for his PBD investment.

It was also reported this week that Lim is “in discussion with potential investors, including Baring Private Equity Asia and the Qatari Investment Authority (QIA)” .

Good timing

The wrapping up of this second parcel from SelProp could not be timelier.

Sources say Lim is currently in the early stages of marketing office space planned on the former JCorp land for about RM1,500 psf based on a net lettable area basis, or RM1,200 psf on a gross basis. Potential buyers are already checking out which block offers the best view, a visit to Impian Ekspresi Sdn Bhd site office will reveal. Private previews are ongoing and by invitation only.

Sources say the development and design concept for the overall former JCorp land should “more or less” be ready, with some tweaking to be done.

Impian Ekspresi is the owner and developer of the former JCorp land – Lim’s first parcel – where nine office blocks currently sit on. These will be demolished for 11 office blocks of varying heights of between eight and 20 storeys, sources say. It was, however, reported that four of the blocks were as low as five storeys high and another four would be seven storeys high. The remaining three, it was reported, will be 12, 14 and 18 storeys high.

The first batch of buildings are expected to be located next to the Sprint Highway where the MRT alignment is currently being built and which overlooks some bungalows, sources say. This first batch of offices are expected to be completed in 2017/18. Earlier press reports said 23 million sq ft of office space will be entering the market, of which a quarter would be in the city centre. Lim’s gamble seems to be the MRT station. There will be two – Semantan near Wisma UN and PBD.

Besides the 11 office blocks, there will also be serviced apartments, a hotel and a shopping mall on the former JCorp land. The mall will be “extended to the second parcel” that Lim is buying, sources say.

Lim’s combined acreage for both parcels of 15.84 acres is expected to generate five million sq ft or more of space over a development period of 10 years. There will be about 5,000 parking bays.

In order to succeed, he needs these numbers. From the local authorities’ point of view, if the plan is to turn the 46-acre PBD into another development like Mid Valley, then they would also have to increase the plot ratio, among other things.

Lim has succeeded in increasing the plot ratio of the former JCorp land to between seven and eight times, according to sources, from the previous four when the area was first developed by SelProp.

Deals with owners

Thus far, Lim has worked out deals with about 20 owners who own strata space among the nine blocks of offices - scheduled to be demolished this year - on the former JCorp land. Tenants RHB Bank, McDonald’s and some of the others along that row are expected to vacate their premises by March of next year, sources say.

Lim has taken time to negotiate with the owners because a couple of them have held out for a higher price. He is believed to have offered them about RM1,000 psf, sources say. One of the owners, linked to a mini market down the road, is said to have bagged RM3,000 psf for his parcel of 5,000 sq ft over certain circumstances, but this figure could not be confirmed. Lim is said to have paid between RM40mil and RM50mil to the 20-odd owners, a source says.

They also have the option of buying future office space in Lim’s redeveloped PBD at between RM600 and RM700 psf, about half the price he is offering to the market. Any additional space will be based on market value, sources add.

Lim’s long road to recoup his investment in Damansara Heights – Kuala Lumpur’s most upmarket suburb – has begun. If he pulls this one off, together with his Bukit Jalil development of about 50 acres, then he is expected to be among Malaysia’s biggest property tycoons.