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Bangunan MAS - A Good Buy for PNB

Rahim & Co was instrumental in the sale and purchase of Bangunan MAS last year. The purchase was a good buy for Pemodalan Nasional Bhd (PNB) for various reasons.

Bangunan MAS presents itself as a rare investment opportunity for astute institutional investors, as it is strategically located along the prime area of Jalan Sultan Ismail, making it a much sought after business address, as well as a well-known landmark in KL. The building is surrounded by and within walking distance from amenities such as the Mutiara Crowne hotel, Equatorial hotel, Raja Chulan LRT station, local and international banks and ubiquitous buses. The building appeals to major anchor tenants simply for its location.

One of the provisions available to PNB to enhance the building’s value is to add another block of offices or service apartments above the existing podium level, thus creating more lettable area and value to the entire development. As the podium levels have a huge advantage of large floor plates boasting some 15,000sf to 23,000sf, this will enable efficient space allocation and usage of space to generate better rental income after some reshuffling of retail tenants and customer service counters are completed.

To modernise the look, façade facelift on Bangunan MAS can be carried out; mechanical and electrical items (lifts, air-conditioning system, etc) only need to be changed on a case-to-case basis. New floor tiles can be easily acquired, while worn out lightings and ceiling boards will need to be replaced.

Just down the road, the successful refurbishment and transformation of Menara Standard Chartered is a testimony of buying a property in a good location. Being the exclusive letting agents for Menara Standard Chartered for nearly 2 years now, Rahim & Co has intimate knowledge about how this building has been transformed to meet today’s market demand. After major refurbishments, Standard Chartered Bank is the anchor tenant, occupying some 140,000sf and increasing. The original ground floor and mezzanine retail space were torn down to create a higher ceiling at the lobby entrance, and the end result was a much brighter and welcome ambience to replace the dimmer and older look.

Today the ground floor houses 2 commissioned sculpture and water feature, a trendy juice bar, Secret Recipe and a 33,000sf California Fitness Centre. Menara Standard Chartered commands a healthy 80% occupancy, with an average rental rate of RM5.00psf for upper floors and average of RM11psf for ground floor retail space. The building was recently acclaimed Best Office Development of the year 2005, awarded by The International Real Estate Federation (FIABCI) Malaysia Property Awards (MPA), demonstrating it as a clear success story.

 
OBB Building
Menara Standard Chartered - Before refurbishment
OBB Building Main Entrance
Menara Standard Chartered -After refurbishment
After having taken the necessary refurbishment, from an investment viewpoint, a simple Return Analysis below shows that Bangunan MAS will indeed be a sound and realistically priced investment.
Projected Net Return at say 80% occupancy at an average RM4.00psf net
  Approximate annual Income & Expenses (RM)
Rental Income 10.368 mil
Carpark Income *assuming at full occupancy at RM150/bay/mth 774,000

Total Income

11.142 mil

Less property taxes and insurance

-1.18 mil

Annual Net Income

9.962mil

 

 

Assuming refurbishment cost at RM50psf

13.5 mil

 Purchase Price at

130mil

Total Income

11.142 mil

   

Projected Net Return at

6.94%

The market has witnessed the change of ownership in commercial buildings more than ever before as a result of strong interest among property companies in launching or preparation of Real Estate Investment Trust’s (REITs), this shift in ownership by traditional private investors to institutional buyers is a healthy move for the office market.
1 In the event that the institutional buyer launches a property REIT and injects the subject property into the REIT, it will provide the general public, for the first-time, an opportunity as shareholders in prime commercial buildings (the recent sales evidence indicate that these buildings are all located in prime locations).
  Sales evidence:
   
 
Building
Year
Vendor

Purchaser

Sale Consideration (RM)

Total Lettable Area (SqFt)

Price Per SqFt (RM)

UOA Centre Parcels
Jalan Pinang

2006

Wisma UOA Sdn Bhd

UOA REIT

57.6 mil

139,572

412

UOA II Parcels
Jalan Pinang

 

Wisma UOA Sdn Bhd

UOA REIT

8.9 mil

437,606

413

Menara HLA
Jalan Kia Peng

 

Hong Leong Development Sdn Bhd

Tower REIT

228 mil

397,000

574

HP Tower
Jalan Gelenggang

 

Hong Leong Properties Sdn Bhd

Tower REIT

135 mil

345,558

391

 

 

 

 

 

 

 

Wisma CycleCarri
Jalan Raja Laut

2005

CCL Properties

EON Bank

140 mil

397,942

351.81

Menara Kemayan
Jalan Ampang

 

Kemayan Bhd

WaterFront (local)

34 mil

85,350

410.07

Wisma Technip
Jalan Tun Razak

 

Goldhill

CapitaLand Ltd

112.5 mil

224,724

500.61

 

 

 

 

 

 

 

MUI Plaza
Jalan p. Ramlee

2004

MUI

Hup Seng Consolidated

160mil
* under refurbishment

345,564

480.37

Tower 3, Vision City
Jalan Sultan Ismail

 

RHB-Daewoo

 MARA

105

218,000

481.65

Wisma KFC
Jalan Sultan Ismail

 

KFC Holdings

EPF

90 mil

175,292

513.43

Wisma Nusantara
Off Jalan Puncak

 

Swiss Gold Realty

Petaling Garden

26mil

95,260

272,94

   
2 Institutional buyer’s key interest is to maintain a steady return to its shareholders. In order to achieve this, the building must be able to continuously attract good tenants and collect steady rental income. As a result, professional property managers are hired to maintain the property, proper marketing campaigns are carried out to increase awareness and continue to market it to the right office space users.
   
3 Because of the institutional buyer’s investment objective, the duration of tenancy periods or leases with its tenants tend to be longer so that it can deliver returns that it promises to its shareholders on a regular basis. Multinational companies that have invested in their office renovations welcome this tenancy or lease arrangement for they too wish to have long-term expansion plans in the same building.
   
4 The end result will see more buildings being refurbished or modernised, enhancing its marketability, life span and ultimately to stay competitive. These efforts will provide existing and future tenants a breath of fresh air to stay on or have more quality buildings to choose from.
   
 

For more information, please contact:
Grace Lee
(t) +60(0)3 26919922 ext 253
(e) gracelee@rahim-co.com

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