Blackstone Can Wait 5 Years for Singapore Property Recovery

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Blackstone Group LP, which is taking part in the refinancing of luxury Singapore properties, is prepared to wait as long as five years for a turnaround in residential prices to see higher returns on the transaction.

Blackstone and Malaysia’s CIMB Bank Bhd. agreed this week to take part in a financing for a luxury hotel, retail and residential development, owned by City Developments Ltd., Singapore’s second-largest developer, on Sentosa island.

In exchange for S$469 million ($357 million) in funding, the New York-based private-equity company and CIMB will receive a fixed 5 percent coupon for five years and other cash flows from the Sentosa project. They also have rights to any proceeds from the sale of the luxury residential units on Sentosa.

Blackstone, the world’s biggest private-equity property investor, has accelerated investments in Asia this year, including buying GE Japan Corp.’s residential business and entering the retiree housing market in Australia. The firm is taking advantage of a slowdown in the Singapore housing market following government curbs since 2009.

“We have a positive long term view of Singapore,” said Singapore-based Kishore Moorjani, a managing director who oversees Blackstone’s Tactical Opportunities Group. Blackstone wouldn’t be satisfied with just a 5 percent return on its Sentosa investment and is eyeing the long-term potential of the residential properties, he said. “We will do very well on this in the long term. We will be better off in five years than we are today,” he said.

Both Blackstone and CIMB said they are willing to wait several years before selling to give prices time to recover.

City Developments shares rose 1.2 percent to S$10 at 2:34 p.m. in Singapore trading, extending their gain so far this year to 4.2 percent.

Prices Drop

The Singapore government has been trying to rein in the property market since 2009 to prevent a bubble forming, with the toughest measures, including stricter lending criteria, introduced last year. Residential prices fell 0.7 percent in the three months ended September, the fourth quarter-on-quarter drop, bringing the slide in the past year to 4 percent.

The island-state is unlikely to ease the curbs until “a meaningful correction” takes place, Finance Minister Tharman Shanmugaratnam said Oct. 28, suggesting prices have further to decline.

Condominium prices in Sentosa, an upscale residential enclave with sweeping views across the Singapore Strait, are close to their lowest level since the end of 2006, according to Maybank Kim Eng Securities Pte. Some house prices on the island have halved since 2012, figures from the Urban Redevelopment Authority show.

Blackstone Deals

Since last year, Blackstone’s property acquisitions in Asia have ranged from Chinese shopping malls to Australian office towers. Since making its first deal in the region in 2007, Blackstone has invested about $7 billion, including $3 billion of equity, according to the firm.

Last month, the U.S. firm agreed to invest A$150 million ($123 million) in National Lifestyle Villages Pty, which develops manufactured retirement communities in Australia, and also agreed to buy GE’s residential business in Japan for more than 190 billion yen ($1.6 billion).

Under the terms of the refinancing agreement, City Developments has to achieve a price of at least S$2,400 per square foot before it can sell the residential properties.

City Developments has sold only 25 of the 228 apartments in the Sentosa development and has leased about half of the rest.

The refinancing, announced Dec. 16, involves Blackstone, CIMB and City Developments investing a total S$750 million in a capital instrument called a profit-participation security. Separately, DBS Bank Ltd. and Oversea-Chinese Banking Corp. will provide S$750 million in loans.

Don’t Sell

City Developments will receive about S$1.2 billion from the transaction. That will allow the company to reduce debt and gives it a freer hand for overseas acquisitions, Chief Executive Officer Grant Kelley said.

The developer is looking for purchases in China and Australia, after spending $1 billion on overseas investments this year, he said. The company will also focus on Japan, the U.S. and the U.K.

Kelley said it will take time for Sentosa residential property prices to recover, though he expressed confidence that prices will rise well above the minimum S$2,400 per square foot within five years.

“Now is not the time to be selling,” Kelley said. “The base case assumption of S$2,400, there is an ultra high probability, almost a certainty, of achieving that. We expect it to be significantly beyond that by the time 2018-2019 comes around.”

CIMB also said it expects to wait to realize a return on the residential properties included in the transaction.

“This gives us a fixed income and also an equity kicker at the end of the five years,” Carol Fong, country chief executive officer, investment banking, for Singapore at CIMB Securities (Singapore) Pte said.