US bank could be tweaking portfolio, sources say; DBS may move to new location
Goldman Sachs is said to be discreetly looking around for a buyer for DBS Building along Shenton Way. The US bank, which bought the two office towers two years ago, could reap a tidy gain of almost $1 billion should a deal go through.
DBS Building: Given the property's age and tenure, it may be hard to find takers at $2,000 psf, say analystsMarket watchers say that it makes sense for Goldman Sachs to reshuffle its office portfolio to more prime locations in Singapore.
Goldman is believed to be seeking a price of at least $2,000 per square foot of net lettable area (NLA), which would work out to about $1.75 billion, compared with the $789 psf or $690 million that it paid for the property in late 2005.
Meanwhile, DBS which sold the property to Goldman and leased back the space it occupied, is expected to relocate to Marina Bay Financial Centre (Phase 2), as reported by BT.
DBS occupied the entire 49-storey Tower 1 - which is more than 30 years old - when it sold the property to Goldman in 2005. It also occupied almost 40 per cent of the 34-storey Tower 2, which is just 13 years old. It leased the premises for eight years, with an option for renewal.
The Singapore bank is now said to be eyeing a move to its prestigious new location, expected to be completed in late 2011. This suggests a period of overlap with its existing lease on DBS Building, that runs till late 2013.
Goldman, on the other hand, has been snapping up new office assets of late.
In August this year, it inked a deal to buy Chevron House at Raffles Place from CapitaLand and other parties for $730 million or $2,780 psf of NLA.
The building stands on a site with a remaining lease of about 81 years. Goldman Sachs is also expected to purchase the 37-storey Hitachi Tower next door, in which CapitaLand also has a stake. The price is understood to be around $3,000 psf, or about $840 million in total. Hitachi House has a 999-year leasehold tenure and faces Collyer Quay.
'It's good business sense for Goldman to move its Singapore office holdings from the old Shenton Way area to Raffles Place/Collyer Quay, where rental and capital values are likely to appreciate faster.
'The new financial district at Marina Bay will be connected to the Raffles Place/Collyer Quay vicinity, which will also be rejuvenated with the Ocean Financial Centre development,' a seasoned industry market watcher said.
Some office market watchers estimate that in the current market, Goldman Sachs may fetch around $1,750 psf to $1,800 psf of NLA for DBS Building - instead of the $2,000 psf minimum price it is seeking - given the property's age and short balance land tenure.
'A lot will also depend on what sort of rentals the building can fetch after DBS moves out,' a property consultant said.
And while the Singapore office market has sizzled this year because of an acute shortage of offices, investors have become a little cautious lately on fears that the US sub-prime contagion could clip the space requirements of big financial institutions here.
'Perhaps Goldman Sachs stands a higher chance of achieving its target price range it if waits a little longer and hopefully by then, the current sub-prime woes may ease,' an observer suggests.
Investment in Singapore's office sector, including land for development into offices, has seen a staggering $14.9 billion worth of deals sealed so far this year. This is about three times the figure for the whole of last year.
The supply crunch has also seen prime office capital values rise from about $2,000 psf at the start of this year to nearly $3,000 psf, as seen in the price that Goldman Sachs is believed to have negotiated for Hitachi Tower.
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