CapitaLand, Rock to build $660m integrated hub

Hub at one-north to boast civic, cultural, retail and entertainment facilities

(SINGAPORE) CapitaLand and Rock Productions will spend a whopping $660 million to develop an integrated civic, cultural, retail and entertainment hub at Vista Xchange, one-north, which is expected to be completed by 2011.

The hub will comprise two zones – a Civic and Cultural Zone measuring over 30,000 square metres in gross floor area, and a Retail and Entertainment Zone spanning 24,000 square metres in GFA.

JTC Corp awarded the tender to build, lease and operate the entire hub to Rock on Friday, on a 60-year lease term at a land bid price of nearly $189 million.

Upon award of the tender to Rock, CapitaLand, through an indirect wholly-owned subsidiary, One Trustee, acquired the Retail and Entertainment Zone from Rock.

Rock will develop the Civic and Cultural Zone at a cost of about $280 million, while CapitaLand will invest another $380 million into developing the Retail and Entertainment Zone.

Designed by Andrew Bromberg of the commercial architecture firm Aedas Hong Kong, the hub will have eight levels of the former zone type and four levels of the latter.

The Civic and Cultural Zone is ‘envisaged to become the new dynamic art, cultural, meeting, convention and exhibition centre in Singapore’, a release said. It will contain a proposed 5,000-seat, state-of- the-art theatre for touring concerts, family entertainment, and other large-scale conferences or events.

It will also contain secondary performance and event spaces, like multi-purpose function rooms and outdoor amphitheatres. IMG Artists has been appointed to consult on and develop the strategies for the marketing and programming efforts.

The Retail and Entertainment Zone will comprise two levels above ground and two below. It will have an ‘open concept with a spiral design’, allowing visitors to stroll casually along a gently sloping spiral walkway to visit the various floors. These will contain restaurants, cafes, supermarkets, fashion and other stores. The zone is envisaged to ‘replicate the atmosphere at Clarke Quay, the premier riverfront F&B, lifestyle and entertainment precinct in Singapore’, the release said.

Director of Rock Productions, Matthew Kang, said his firm’s ‘extensive research indicates an overwhelming need for a sizeable performance venue, away from the city’ but ‘well-equipped with state- of-the-art facilities’.

Pua Seck Guan, CEO of CapitaLand Retail, said the hub represents a chance for CapitaLand to extend its presence to the Buona Vista area in Singapore.

It is expected to ‘benefit from the natural visitor catchments from the one-north communities, surrounding housing estates, as well as tertiary institutions close by’.

The hub will be directly linked to the Buona Vista MRT and also be served by a Circle Line MRT station currently under construction.

Vista Xchange is the first of three ‘centres of excellence’ under JTC’s one-north masterplan. Besides the hub, it will house offices, a business hotel and residential buildings over 17 hectares.

 

Source: Business Times 10 Sept 07

Ascott in serviced residence tie-up

(DUBAI) Ascott Group Ltd, the biggest serviced-residence operator in Asia and Europe, and a group of Middle Eastern investors have started a venture to buy and manage properties in Persian Gulf Arab states.

Bahrain-based Nuzul Holding BSC has US$100 million of start-up capital from founding shareholders including Qatar’s pension fund, Barwa Real Estate Co, and Saudi Economic & Development Co, the new company said in a statement posted on Dubai-based business website Ame Info yesterday.

‘Partnering with the reputed Ascott International has enabled us to introduce high-quality serviced residences to the Gulf states for the first time,’ Nuzul’s chairman Ali al-Obaidli said in the statement.

CapitaLand Ltd, Ascott’s parent company, in May said it agreed to invest US$130 million in a fund to develop residential and retail projects in Bahrain.

Ascott and Nuzul aim to manage 15 serviced residences in the Gulf by 2010 and at least 50 by 2017 to meet demand from business travellers and tourists, according to the statement.

 

Source: Bloomberg (Business Times 10 Sept 07)

A quick guide to sub-prime issues

How individual loan defaults in a faraway land can have a domino effect all over the world – including here

PAUSE for a moment to consider these facts: HSBC, the world’s third-largest bank, announced that 50 per cent of its earnings in 2006 were wiped out by sub-prime losses from its US subsidiary. Since the beginning of that year, over 50 US mortgage companies have put themselves up for sale, closed or been declared bankrupt. In July this year, Bear Stearns closed two of its ailing hedge funds, while in June, BNP Paribas announced the suspension of three of its funds due to exposure to US mortgages.

With news like this making waves in financial markets lately, it is hardly surprising to see the proliferation of doomsday headlines like ‘Market falls parallel previous collapses’, and ‘Anxiety attack knocks markets down’. No longer confined to the US real estate or financial markets, the topic of America’s sub-prime mortgage market has taken centre-stage, as fears of a spillover spread to financial markets in Europe and Asia – even Singapore.

How did it all begin?

Before the US real estate bubble burst, sub-prime lending was a rapidly growing segment of the mortgage market.

It worked by banks extending credit to borrowers who, for a number of reasons, would otherwise be unable to qualify for credit. According to the US Department of Treasury guidelines issued in 2001, ’sub-prime borrowers typically have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments and bankruptcies’.

Most US sub-prime mortgages have an attractive initial fixed-rate mortgage payment for a few years, followed by a higher adjustable rate for the remaining life of the mortgage. The sub-prime mortgage industry began to proliferate earlier this century and estimates say that about 21 per cent of all mortgage originations from 2004 to 2006 were sub-prime – a sharp increase from 9 per cent in 1996-2004. At its height in 2005, sub-prime mortgages were worth US$805 billion.

Although not all sub-prime loans are necessarily high-risk, many of them were made to homebuyers with poor credit or little income. As the US housing market boomed, thousands of lenders greedily sought greater profits by aggressively touting loans to individuals with poorer credit ratings and making greater exceptions to guidelines. In certain cases, individuals were not even required to produce any proof of their income.

These sub-prime loans were bought mainly by big banks which bundled the debt and sold them to Wall Street firms. To sell these ticking time bombs, Wall Street packaged these risky loans with supposedly safer loans to create instruments known as collateralised debt obligations (CDOs) – making them more attractive to risk-averse investors. In 2006, an estimated US$100 billion of sub-prime debt went into US$375 billion worth of CDOs.

In pursuit of higher yields, investors stretching from Europe to Asia invested in these instruments for their potentially higher returns, as compared to bonds with the same ratings.

What went wrong?

Trouble started brewing when the US economy began showing signs of slowing down. Interest rates crept up, house prices tumbled and sub-prime mortgage defaults began climbing at an alarming rate, reaching 12.6 per cent at one point.

As default rates soared, creating losses on the underlying mortgages of CDOs, investors began to question the reliability of the models and ratings which valued these CDOs; indeed, credit rating agencies like Moody’s have come under fire for misjudging default rates in sub-prime mortgages. With the uncertainty surrounding the current analysis and valuation of credit risk, many investors have decided to pull back on investments in CDOs and hedge funds with stakes in such securities.

Explained Jeremy Goh, an associate professor of finance at the Singapore Management University (SMU): ‘When investors heard all these negative things about default rates in the news, they started withdrawing their money from hedge funds and parked them in safer money market instruments like treasury bills.’

The result was a triggered chain of reactions which affected markets worldwide. Hedge funds were forced to unload their assets in order to raise cash.

The scattered ownership of CDOs has in turn created widespread loss of confidence in financial markets. Besides affecting all holders of sub-prime-related assets, the greater and more serious implication of the sub-prime crisis is a squeeze on liquidity. Due to the uncertainty over other financial institutions’ exposure to sub-prime losses, they became unwilling to lend to each other.

A tsunami or ripple effect?

However, central banks around the world have responded by injecting liquidity into the markets to ease fears of a liquidity crunch. The US Federal Reserve has also cut its discount rate (which it charges for emergency lending to banks) from 6.25 per cent to 5.75 per cent.

Asian equity funds have also been hit hard, and among those affected the most are funds from Singapore and Malaysia. Data from Morningstar Asia showed that funds from both countries sank an average of 10 per cent.

Asian stock markets has also been tumultuous, spreading fears that a slowdown in the US economy will extend to the rest of the world.

Although the sub-prime crisis in the US may be a cause for concern, investors here should not be overly worried as Asian fundamentals remain strong. Many industry watchers agree that Asia’s economies are no longer as reliant on the US as in the past. As intra-regional trade grows, Asian giants like China and India have become increasingly important trade partners for other Asian countries instead of the US.

Fundamentals of Singapore’s economy remain firm as well, analysts agree. With the introduction of Formula One and the integrated resorts in the coming years, demand and consumption is likely to continue to propel Singapore’s growth.

Prof Goh concurs: ‘I think the jittery stock market in Singapore is only temporary, and I believe that highly-rated CDOs are still safe. Even if the US economy is heading for a recession, it will be a mild one, so the problem could be due to panic selling in the markets or hedge funds unloading some illiquid assets.

‘ As a result, it triggers fear in the lending market. Lenders are more reluctant to lend, which might have some effect on the economy – but nothing major, in my opinion.’

 

Source: Business Times 10 Sept 07

More market panic ahead as banks ‘fess up’ on sub-prime

Confidence in banks exceptionally low, says JP Morgan Asia

(SINGAPORE) Be prepared for more market panic as major banks continue to ‘fess up’ to their holdings of US subprime mortgage securities over the next several months, said Ivan Leung, JP Morgan Asia chief investment strategist.

The world’s financial markets are in turmoil as worries over exposure to the US sub-prime mortgage debt has led to a freeze in the credit market with global central banks having to step in to provide liquidity.

Around the world, banks are under intense pressure as investors and analysts cast a spotlight on their exposure to sub-prime, or high-risk, property loans in the US through their investments in collateralised debt obligations, known as CDOs.

There is little information on the amount of CDOs held by banks, which has led to ‘exceptional low’ confidence in the banks, said Mr Leung in an interview last week. In the past month, European and Asian banks including DBS Group Holdings and United Overseas Bank have revealed their CDO holdings.

‘(US banks) originate it, they package it, they sell it – but it doesn’t necessarily mean they hold on to it,’ Mr Leung said.

He said that, often, US banks do hold on to some of these CDOs in structured investment vehicles – off their balance sheets – so there is no transparency on their holdings. He described this as scary.

‘European banks, and to a lesser extent – so far as we have seen – Asian banks, were purchasers of these products,’ Mr Leung said.

‘So the crisis in confidence is not so much that there could be a 80 billion or even a 200 billion dollar loss of subprime; the confidence issue is that we don’t know exactly who is holding all this debt,’ he said.

And we don’t really know the prices of all this debt, and how much of it will be subject to default, he said.

‘The confessions, you see them once in a while; that’s why we think this is an issue, because over the next three to six months, some banks will begin to confess that they have some on their balance sheet, and some off-balance sheet, but clearly right now, nobody really has a true picture of what’s going on. ‘It’s the worst of all situations – nobody knows.’

Mr Leung expects the markets to veer between confidence and ‘blind panic’ each time there is another disclosure.

Bank shares skidded on Aug 24 after DBS and three of Asia’s biggest banks revealed bigger-than-expected exposure to the US sub-prime mortgage crisis.

DBS said that it had US$1.6 billion (S$2.43 billion) in holdings of CDOs – more than the S$1.3 billion disclosed on Aug 7.

An additional 1.5 million sub-prime borrowers may fall behind on their mortgage payments as introductory interest rates on those loans rise this year and next, US Federal Deposit Insurance Corp chairman Sheila Bair said last week.

Among the 2.5 million sub-prime mortgages with interest rates that are expected to be reset this year and next, ‘1.5 million will be in financial distress’, Ms Bair said.

Getting any kind of centralised data collection will be very challenging, she said.

JP Morgan estimates that US$600 billion worth of adjustable rate mortgages will be reset over the next 12 months.

But, following the adage that there are always opportunities when risks are high, Mr Leung said that one way for investors to take advantage of the current extreme volatility in the markets is to buy ‘plain vanilla’ short-term structured notes with capital protection.

The notes are designed to give a high payout even if the stock markets move only slightly higher, he said. ‘When volatility is as high as it is right now, we can go for simple structures,’ Mr Leung said.

The notes that JP Morgan is offering are meant for investors who share the view that the US mortgage crisis will not lead to a recession. Lower growth, yes, and therefore moderately bullish stock markets still.

Mr Leung said that JP Morgan was positive on undervalued markets such as Thailand and South Korea and favours Singapore and China companies which have superior corporate and economic fundamentals.

 

Source: Business Times 10 Sept 07

Rate cut not always needed: Fed official

Market disruptions can be addressed using tools available

(NEW YORK) Federal Reserve Bank of Philadelphia president Charles Plosser said there is an ‘underlying stability’ in the US economy and officials need not always cut interest rates in response to turmoil in financial markets.

‘Disruptions in financial markets can be addressed using the tools available to the Federal Reserve without necessarily having to make a shift in the overall direction of monetary policy,’ Mr Plosser said on Saturday at a conference in Waikoloa, Hawaii.

Mr Plosser said while the housing slump has lowered forecasts for the expansion and there is ‘considerable uncertainty’ about the outlook, he expects economic growth to return ‘toward trend later in 2008.’ The drag from housing will ‘gradually’ ease, concluding sometime next year.

The comments suggest that Mr Plosser has yet to conclude a reduction in the Fed’s benchmark rate is critical to safeguard the economy, which lost jobs for the first time in four years in August. The Philadelphia Fed chief doesn’t vote on the rate-setting Federal Open Market Committee until next year.

Lowering the benchmark rate is an ‘option if financial sector problems spill over to significantly harm the outlook for the broader economy,’ said Mr Plosser, 58, who took office a year ago. And, when shocks threaten market stability, a central bank ‘must be prepared to act promptly,’ he said.

Mr Plosser said that the US has coped with blows in the past, such as the devastation of Hurricane Katrina in 2005 and oil-price shocks, and that a decline in one industry ‘does not always imply major problems in the economy as a whole.’

‘It is important to understand and appreciate this underlying stability of the economy in the face of temporary disturbances as we seek to assess monetary policy,’ Mr Plosser told the Pennsylvania Association of Community Bankers convention.

Investors and economists said on Friday there’s little doubt Fed policy makers will lower the main rate after a government report that day showed employers unexpectedly cut 4,000 from payrolls in August.

‘The committee usually does not base its decision to change monetary policy on any one number,’ Mr Plosser said, without referring specifically to the August jobs report.

Answering questions following his speech, Mr Plosser said the outlook for inflation is ’still up in the air,’ and it’s not clear that the moderation in prices of recent months will be sustained.

 

Source: Bloomberg (Business Times 10 Sept 07)

Fed has effectively cut funds rate: analysts

They say unusually large spread between fed funds target and effective rates signals Fed’s next move

(NEW YORK) Here’s a secret: The Federal Reserve has already cut the fed funds rate.

Yes, the Fed’s target rate is still the same 5.25 per cent it has been since June 2006, and the US central bank has only formally cut the less-used discount rate on loans it makes directly to banks.

But going back to Aug 9, when global central banks started flooding financial systems with cash to prevent a complete shutdown of credit markets, the actual rate at which US banks are providing each other overnight funds, the fed funds effective rate, has averaged just under 5 per cent, according to Federal Reserve data.

That’s equivalent to the 25-basis-point reduction in the fed funds target rate that many investors expect US monetary policy-makers to announce at their next meeting on Sept 18.

‘The Fed already eased,’ said Jim Bianco, president of Bianco Research in Chicago, a member of the bond market camp that says a de facto rate cut happened a month ago and a formal announcement of one on the 18th would be little more than a rubber stamp.

‘This is really hard for many market participants. They are so locked into the target rate that they cannot see the game has changed. The target rate is meaningless,’ Mr Bianco said.

Mr Bianco’s view is not universal, however. Others counter that the Fed’s out-sized liquidity injections are strictly temporary measures to ease credit conditions and are not the equal of a formal policy change by the Federal Open Market Committee.

This group does agree, though, that rubber stamp or not, the unusually large spread between the fed funds target rate and the effective rate is a clear signal of the Fed’s next move.

Typically the effective rate rarely sways beyond a few basis points on either side of the target rate. But through last Thursday, the 21-day moving average on the effective rate has been 4.99 per cent – a 26-basis point spread.

In fact, the last time such a significant deviation between the two occurred for a persistent period was after the Sept 11 attacks. The Fed kept the banking system flush with cash and followed through with two rate cuts by the first week of October, including a rare inter-meeting cut on Sept 17, 2001.

The effective fed funds rate – a weighted average of where federal funds trade over one session – was 4.98 per cent last Thursday, well below the 5.25 per cent target rate.

‘Federal funds typically would move only 5 basis points around the target,’ said Kenneth Kim, economist with Stone & McCarthy Research Associates, in Princeton, New Jersey.

Normally, ‘maybe not until a day or two before the meeting you could see some slippage.’ ‘But these are extraordinary circumstances,’ he said.

Since Aug 9, the Federal Reserve has added US$199 billion of temporary reserves to the banking system. These operations have eased the pain for banks struggling with the US subprime mortgage debt crisis and have also contributed to striking volatility in the overnight money market.

And, despite the sudden gap between the target and effective rates, some analysts say the recent moves in federal funds simply reflect those upheavals and fast-changing credit conditions.

‘While the Fed may very well cut the funds target on the 18th, I don’t think you can make the leap of faith that the effective fed funds rate being below target was the signal,’ said Kevin Flanagan, fixed income strategist for global wealth management with Morgan Stanley in Purchase, New York.

In fact, the daily trading in the fed funds rate has been the most volatile since at least 1994, careening from effectively zero to as high as 6.05 per cent in just one session on Aug 10.

Before 1994, federal funds traded rates were a main tool for tracking Federal Reserve policy, and big swings then were a signal of a policy change. In 1994, though, the Fed adopted the current system of targeting a specific rate and announcing changes to its target the same day, as part of an effort to increase transparency to markets.

Since then, the effective rate has lost some of its predictive power, and for clues to pending rate moves investors have turned instead to rate futures markets.

Still, the current gap probably cannot continue for much longer. Either the Fed has to cut the target rate, as most now expect, or it has to ease up on the liquidity injections to allow the effective rate to float back up to a more typical spread.

 

Source: Reuters (Business Times 10 Sept 07)

Some Katong commercial properties going for en-bloc sale

Buildings include Katong Shopping Centre; sales could help rejuvenate area and boost image

FACED with flagging businesses and dwindling human traffic, the shop owners of several commercial buildings in Katong are coming together to sell their properties en bloc.

This has led to renewed interest in the old East Coast hot spot recently, sparking hopes among residents and shopkeepers nearby that the area – famed for its good food and old-world charm – will get the rejuvenation that it needs to boost its image.

At least five commercial buildings along Mountbatten Road and East Coast Road have, or are in the process of engaging marketing agents to launch their collective sales. These include Katong Mall, Paramount Hotel and Shopping Centre, Roxy Square, Katong Plaza and the iconic Katong Shopping Centre, said Mr Lui Seng Fatt, the regional director and head of investments at Jones Lang LaSalle.

In its heyday, Katong Shopping Centre was the heart and soul of the East. But as the years wore on, the lack of entertainment facilities and an attractive retail mix made it a poor rival to malls like Parkway Parade.

Many of these buildings in Katong are more than 20 years old and, in the case of Katong Shopping Centre, which opened in 1973, more than 30.

Dr Lim Un Huat, an owner of several shops at Katong Mall, told The Straits Times most shop owners were in favour of a collective sale, and were waiting for the right price to sell.

Mr Lui said the ‘tired-looking’ buildings were overdue for a revamp, especially since residential projects in the area have gone upmarket.

Prices of homes in the Katong, Meyer and Amber Road residential enclave have soared recently with the property boom. The area’s proximity to the upcoming Integrated Resort in Marina Bay is an added lure.

United Industrial Corporation’s One Amber and Grand Duchess sold out around $700 to $800 per sq feet (psf) recently. CapitaLand’s The Seafront on Meyer and GuocoLand’s The View @ Meyer fetched new highs of between $1,500 psf and $1,800 psf.

While the shop owners do not expect to make a ‘huge windfall’, Mr Lui said selling en bloc would help them unlock the value of their shops.

He estimates that the prices transacted would be between $500 psf and $1,000 psf, depending on the building.

Colliers International’s executive director for investment sales, Mr Ho Eng Joo, said Katong’s rejuvenation would be a ‘natural progression’ following the influx of residents living in the area’s new condominiums.

‘Katong’s residential area is getting quite vibrant, so the commercial side has to catch up now,’ he said.

The only setback, he added, would be the new rules for collective sales – expected to kick in next month – which will prolong the sale process.

But in three or four years’ time, Katong could be transformed, he added.

However, while some property consultants remain optimistic about Katong’s future, others remain cautious.

Director of marketing and business development Ku Swee Yong at Savills Singapore said the area was a ‘bit of a mixed bag’ – comprising offices, residential apartments, hotels and retail space – which makes it ‘neither here nor there’ for redevelopment.

‘The area’s physical limitations mean a very creative approach is needed to redevelop it,’ he added.

From a conservation perspective, the revitalisation of Katong is desirable if done properly, said Singapore Heritage Society president Kevin Tan.

Over the years, the retail business in the area has withered, and given way to maid agencies, pubs and video arcades. But this can be changed by injecting some new life and a new trade mix into the area, he added.

He hopes, however, that the architecture of Katong Shopping Centre will be conserved as it was ‘very important in East Coast’s history’.

Shop owner Dr Lim concurred: ‘We all hope to bring back the hustle and bustle of the old Katong.’

 

MOVING FORWARD

‘Katong’s residential area is getting quite vibrant, so the commercial side has to catch up now.’

MR HO, Colliers International executive director for investment sales

OBSTACLES TO BEAT

‘The area’s limitations mean a very creative approach is needed to redevelop it.’

MR KU, Savills Singapore director of marketing and business development, on the area’s mixed developments

 

Source: The Straits Times 10 Sept 07