OG buys Orchard serviced apartments from Ascott
September 9, 2008
DEPARTMENT
store chain OG has bought a block of serviced residences that form part
of its Orchard Point store in Orchard Road.
The local
unlisted retailer paid The Ascott Group $100 million in cash for the
88-unit Somerset Orchard.
Ascott,
the serviced apartment arm of property heavyweight CapitaLand, had originally
sold OG the four-storey Orchard Point retail podium in 2001.
At that
time, it agreed to offer the retailer the right of first refusal for
the serviced residences on the sixth to 10th storeys of the building.
Ascott will
continue to manage the residences for 15 years, with an option to renew
the contract for another 10 years, it said in a statement yesterday.
The deal
yields Ascott a gross gain of $43 million and works out to a price of
about $1,530 per sq ft for the property, which has about 74 years left
on its lease.
The price
is ‘reflective of current market sentiment’, said Mr Donald Han, managing
director of property consultancy Cushman & Wakefield.
‘It looks
cheap compared to other Orchard Road residences, but the location is
not as prime as Orchard Turn and it’s a leasehold property that’s about
20 years old,’ he added.
Mr Han suggested
that OG’s reason for the purchase was to have ‘total envelope internal
and external control’ of the building.
‘If they
have plans to refurbish it, they can create a more thematic approach
for the entire development.’
For Ascott,
the sale would be in-keeping with its asset-light goal. ‘It’s a win-win
scenario,’ Mr Han said.
Generally,
property experts viewed the purchase favourably for OG.
‘From an
investment point of view, it’s a good deal,’ said Mr Craig Ward, director
of commercial investment at Jones Lang LaSalle.
‘Anyone
buying into the serviced apartment market has pretty strong foresight.
‘There isn’t
huge amount of supply of serviced apartments but there is a substantial
amount of demand, as serviced apartments provide a good alternative
for hotels.’
Ms Sherene
Sng, head of retail at Knight Frank, agreed. ‘The shortage of hotel
space in Singapore now is quite acute, so I would think any company
on the lookout for business opportunities would jump at the chance to
own these serviced apartments; they’re the flavour of the month at the
moment.’
While it
is unlikely that OG will convert the serviced residences to shops, there
is a possibility it could top up the lease to a fresh 99 years and convert
the block to residential apartments, said Mr Han.
‘It may
not be the intention for OG’s purchase, but the value of the property
could be in topping up the lease in the future,’ he said.
Serviced
apartments are zoned for residential use, not hotel use, which could
make it easier to convert.
Source :
Straits Times - 9 Sep 2008
