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Tuesday, January 8, 2008

Euro buyer found

Bandar Raya to sell office tower for RM439mil

KUALA LUMPUR: Bandar Raya Development Bhd (BDRB) has found a European buyer for Office Tower 2 (OT2), which has been left uncompleted since 1997, for RM439.3mil.

“This (the sale of OT2) is the most significant part of the puzzle ... it will bring the Capital Square project to a closure,” BDRB chief executive officer Datuk Jagan Sabapathy told StarBiz yesterday.

In a statement to Bursa Malaysia, BDRB said its 70%-owned unit, Capital Square Sdn Bhd, signed a conditional sales and purchase agreement with Germany-based Union Investment Real Estate AG for the en bloc sale of the 41-storey office building.

The proposed sale would enable the company to unlock the value of OT2. The cash received could be utilised to finance the development of the other components of the Capital Square project.

The proposal was expected to contribute to BDRB's earnings for the financial years ending Dec 31, 2008 (FY08) to FY10.

Analysts said such en bloc sales would normally help ease a property developer's cashflow and it need not have to worry about cash being tight in unsold units when the project was completed.

Union Investment is an international investment management company specialising in open-ended real estate funds for private and institutional investors. It has assets under management amounted to 11.6 billion euros and has expanded into 12 new markets, including Japan, Singapore, Mexico and Hungary.

The OT2, which will be completed in 2011, is a Grade A office block at Jalan Munshi Abdullah in Kuala Lumpur.

With net lettable area of 600,000 sq ft, the sale consideration of RM439.3mil will be translated to about RM734 per sq ft.

Jagan said the deal signified a big improvement in the pricing of commercial property in the city centre.

“For a long time, the valuation (on commercial properties) was sitting between RM650 and RM700 per sq ft. We have gone past that,” he noted.

Analysts concurred the pricing was fair for the location, although it was not a hefty premium.

The latest en bloc deal prior to BDRB's transaction was done by Mah Sing Group Bhd, which managed to sell The Icon Jalan Tun Razak (East Wing) in November to Prompt Symphony Sdn Bhd for RM237mil or RM969 per sq ft.

Prompt Symphony is a special-purpose vehicle set up by Kuwait Finance House and Autron Corp Ltd.

Mah Sing, however, sold the The Icon's West Wing to Koperasi Permodalan Felda in July for RM174.4mil, or about RM714 per sq ft. Jagan took pride that this was one of the first deals that brought an European real estate management firm into the Malaysian property market.

“We have not seen much European funds. We have seen more foreign buyers from the Middle East,” he said.

To clinch a deal with the top real estate company, Jagan said BDRB had gone through an “exhaustive process.” The buyer had done stringent audit on BDRB, ranging from the design, the group's ability to deliver to its existing completed projects.

“It took three months for us to complete the due diligence process,” he said, adding that the success of the deal might help to pave the way for BDRB and Union Investment to explore more opportunities locally and in the region.

By The Star (by Kathy Fong and Yvonne Tan)

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