Avery Invests $100m On 'Upmarket' Dorm

Source : The Business Times, January 21, 2008

Morgan Stanley- controlled venture aims to be market leader in this sector

Avery Strategic Investments, a Morgan Stanley-controlled venture that bought three foreign workers' dormitories from JTC Corp last year for $153 million, is gunning to be the biggest player in this sector, investing a further $100 million to develop an 'upmarket' dormitory fronting Jurong River.

Avery Lodge: When completed in March next year, the facility will be able to house about 8,000 workers in 486 units. Each unit will have 16-18 beds and its own living, dining and kitchen areas

The facility, when completed in March next year, will be able to house about 8,000 workers - making it the biggest on the island, says Vernon Chua, managing director of Averic Capital Management, the asset manager for the venture and which holds a 3 per cent stake in Avery Strategic Investments.

Morgan Stanley Real Estate-managed funds hold the remaining 97 per cent.

The new six-storey property, to be named Avery Lodge, will bring the total bedcount in the group's Singapore dormitory portfolio to about 21,500, probably putting Avery Strategic on par with the biggest player currently, Mini Environment Services.

Avery Lodge's 8,000-bed maximum capacity will surpass the 7,000 beds at Capital Development's Toh Guan Dormitory, now the largest in Singapore.

But more than just aiming for a pole position in the industry, Avery Strategic is planning to brand its product.

'We see an opportunity to differentiate our product and be a market leader. It's a bit like the hotel industry, where a brand is associated with a standard experience. We're trying to run this more institutionally, more professionally, giving our corporate tenants (the employers of the foreign workers) a sense of reliability,' Mr Chua said in a recent interview with BT.

Avery Lodge, designed by ADDP Architects, is being built on a 30-year leasehold plot at Jalan Papan which Avery Strategic clinched at a JTC tender last year for about $40.1 million.

The nearly two-hectare site will be developed into 486 units, which are like self-contained apartments with their own living, dining and kitchen areas in addition to sleeping quarters. Each unit will have 16-18 beds.

'This will be a relatively upmarket dormitory, with bay windows, more generous floor-to-ceiling heights and space per worker, and amenities,' Mr Chua said.

All common areas will be tiled, and the facility will also have a gym, video games room, Internet cafe, mini-mart and canteen.

Security features include access through biometric cards and 24-hour guard patrols.

'We'll be providing a well-balanced living environment for the workers, not just a place where they spend the night,' Mr Chua stressed.

Avery Lodge's tenants will be mostly the shipyards and other companies in the marine industries in the Jurong area.

Industry players say foreign worker dormitory rents rose more than 30 per cent last year to about $130-$180 per worker monthly on the back of strong economic growth and a shortage of such facilities. Net yields on such properties are understood to be double-digit, in the low teens, although Avery Strategic declined to comment on this.

'We're keen on investing further in this industry, whether it is buying dormitories from existing operators or building more quality dormitories, like what we're doing for Avery Lodge,' says Eric Tan, Averic's director (asset management) and co-owner of the company with Mr Chua.

'The fundamental demand in this market is going to remain strong against the backdrop of the global economic market,' Mr Tan added. 'As the Singapore economy grows, likely so will the dormitory business. We're hopeful the economy remains robust; then there'll be more opportunities to invest in this asset class.'

Although the Morgan Stanley-Averic tie-up is currently only for Singapore, the pair are open to replicating this model elsewhere.

This is the first time Morgan Stanley has invested in workers' dormitories anywhere. It saw an opportunity to pursue a non-traditional asset class and to be a market leader when JTC Corp last year offered for sale its three dormitories - Kian Teck Dormitory in Jurong, Woodlands Dormitory and Tampines Dormitory - with a total of 13,544 beds.

'It was an industry not dominated by any institutional player, except JTC, which was exiting the business. So there was a niche for a player like us. There's demand among corporates for better quality dormitories to house their foreign workers,' said Mr Tan.