Lehman's Failure Won't Affect Projects: CES

Source : The Business Times, September 25, 2008

The 2 condos are substantially sold; funds to complete projects secured

CHIP Eng Seng (CES) said its two joint-venture projects with a real estate equity fund managed by Lehman Brothers are unaffected by the collapse of the US investment bank.

CityVista: The 70-unit project at Peck Hay Rd is already 54% sold at an average $2,550 psf, while The Parc Condo at West Coast Walk is 95% sold at an average price of $880 per square foot

Its JV partner is Lehman Brothers Real Estate Partners II (LBREP II), a US$2.4 billion fund that was closed in 2005. Only a fraction of that sum - some US$400 million - came from Lehman Brothers and its employees.

CES had formed a 50-50 JV with LBREP II's wholly owned special purpose vehicle WM Mauritius Holdings for two high-rise freehold condominium projects.

But a reassuring fact is that the 695-unit The Parc Condominium at West Coast Walk is already 95 per cent sold at an average price of $880 per square foot (psf). The 70-unit CityVista at Peck Hay Road is 54 per cent sold at an average $2,550 psf.

All instalments of purchase money and construction loans have since been deposited into the Project Account of the building projects as stipulated by the Housing Developers Act.

'With financing being secured with the bank, funds needed to finish the whole project was already secured. Not to mention that the projects were launched successfully and the deposits we collected are more than enough to fund the two projects till completion,' CES chief executive Raymond Chia told BT.

The two projects are expected to be completed by the second half of 2010.

CES teamed up with Lehman to bid for four projects in total. Two tenders did not succeed.

Asked if Lehman's collapse will cause CES to search for a new JV partner for future projects, Mr Chia said CES is not short of choice, having landed on the radar screen of equity funds since its partnership with the Lehman fund in 2006. CES has since received enquiries from large funds on opportunities to work together on projects in Singapore and Vietnam, Mr Chia said.

But he noted that CES can take on larger projects on its own now and, hence, has more options besides JVs. There also is the support of its 25 per cent shareholder Citadel Equity Fund, part of the Chicago-based Citadel Investment Group. Both are working together on a freehold condo project Grange Infinite, which is 100 per cent sold.

While Lehman's failure may hurt US commercial property, its impact here is likely to be cushioned.

Lehman Brothers is believed to own a 45,000 square feet building at Clemenceau Avenue worth about $80 million. Its managed fund teamed up with Australia's Lend Lease in a 75:25 JV to buy Paradiz Centre in Selegie Road for $138 million in 2006.

Paradiz Centre is being redeveloped and slated for completion by the end of this year. But it is understood that Lehman's collapse will not affect the fund that owns this project and Lend Lease has pre-emptive rights to buy out Lehman's stake in the venture.

Lehman Brothers also occupies minimal amount of office space here. It currently takes up about 40,000 square feet of office space in Suntec City Office Tower Five, a mere 3.1 per cent of the total Suntec City office space of 1.29 million square feet, according to DMG & Partners Securities.

Its other assets have been divested. The office building at 71 Robinson Road which Lehman jointly owned with Kajima Overseas Asia in April was sold to a German fund for $743.8 million, higher than some $613.4 million they spent on the land and redevelopment. Lehman sold Novotel Clarke Quay last year to CDL Hospitality Real Estate Investment Trust at $219.8 million, double the amount it spent on it.