Morgan Stanley Seeks Pot Of Gold In Workers' Dorms

Source : The Business Times, December 27, 2007

$153m deal comes at a time when shortage, building boom boost returns

Morgan Stanley has expanded its Singapore real estate investment portfolio to include an unusual asset class - foreign workers' dormitories.

An entity understood to be linked to the US bank recently bought three dormitories from JTC Corp for $153 million and is said to have teamed up with a local party to purchase more such properties from the private sector, sources say.

'It may seem an unglamorous property type but the yields can be very attractive and Morgan Stanley has clearly sensed a business opportunity in an area that other foreign funds and property investment groups may not have spotted yet,' a source says.

Morgan Stanley is said to be targeting dormitories whose tenants include blue-chip companies that lease space in these facilities for their foreign workers.

DTZ Debenham Tie Leung executive director Ong Choon Fah notes that foreign institutional investors have been diversifying their property investments in Asia, including Singapore, over the years.

'Traditionally, most institutional investors go for income-generating commercial properties like offices and retail, as well as industrial (specifically logistics and warehousing). And then serviced apartments started featuring in their portfolios. In Asia, these investors have started to look at non-traditional assets that offer higher yields as well as (residential) property development, because of yield compression for the traditional asset classes they used to focus on.

'Yields on these segments have fallen as more and more investments chase limited assets. You now have superannuation funds from Australia, Reits, and sovereign wealth funds, private equity...,' Mrs Ong says.

She suggests that student housing is another sector that foreign funds may target. 'Studies have shown this to be quite a stable source of income. In places like the US and Europe, anything with P&L (income flow) can be Reited or be attractive to institutional investors - like senior housing, nursing homes, self-storage facilities, even prisons,' Mrs Ong notes.

The three dormitories that Morgan Stanley has purchased from JTC are Kian Teck Dormitory in Jurong, Tampines Dormitory and Woodlands Dormitory. Kian Teck Dormitory has 411 units with two types of units - one that can house six to 12 persons per unit, and another for seven to 14 persons per unit. Morgan Stanley unit Avery Strategic Investments bagged the properties following a public tender that closed earlier this year. It was the highest of eight bidders for the dormitories. The sale was completed in the fourth quarter.

There are currently over 20 other major dormitories for housing foreign workers in Singapore. Dormitory rentals have been on the rise, especially in the past 12 months. 'There's a shortage of dorms islandwide mainly because of the construction boom. That's why some property investors are starting to look at these facilities,' an industry observer says.

Some industry watchers suggest that property yields for dormitory investors could be around 20 per cent or even higher. 'It depends to a large extent on the length of the balance lease term on the land - the shorter the remaining lease, the higher the return a potential investor will seek. There's a whole range of land leases for dormitories in the market - freehold, 60 years, 30 years and some even as short as 3 + 3 years,' an industry observer explains.