It’s been nine months ago that Ashish Manchharam, founder and CEO of 8M Real Estate (8M) has stepped into the shophouse market in conservation through his initial purchase of of five shophouses located at the 112-116 Amoy Street. The purchase price was $50 million. the shophouses located in the CBD in the year 2014. Based on the gross floor area (GFA) that was 27,500 square feet across five shophouses, the $50 million price of the purchase equates to $1,818 per square foot.
These five shophouses located at Amoy Street are valued at more than $110 million, or $4,000 per square foot. “When we first began acquiring shophouses in 2014 there was no properties were valued at more than the value of $100 million” claims Manchharam. “Today we’re probably in possession of just a few properties over the $100 million mark.”
The shophouses along Amoy Street, owned by 8M and 8M, have a leasehold tenure with 99-year leases beginning in 1990. The leasehold prices for the freehold and leasehold shophouses located in Chinatown, the CBD along with Chinatown in the prime Districts 1, 2 and 3 have gone up even more.
On November 20, 2022 a storehouse located at 95 Amoy Street changed hands for $18.688 million, or $6,028 per square foot in accordance with an GFA of 3,100 square feet, as well as a 999-year leasehold site of 1,856 square feet. Then, five months later in the beginning of April, a caveat was negotiated to purchase the exact same building at $21.8 million, or $7,032 per square foot. It was purchased by NC Properties, an entity associated with Hong Hong Kong’s New Century Group. NC Properties is said to also own other conservation shophouses situated in Telok Ayer and Circular Road too.
“The deal of Amoy Street has set a new benchmark for the cost of leasehold and freehold shophouses within Districts 1 and 2. CBD and Chinatown district in Districts 1, 2 and 3” declares Richard Tan, senior group district director at PropNex Shophouse Elites and a specialist in the conservation of shophouses.
8M has been a major beneficiary of the rising the cost of shophouses in conservation. In 2017 the real estate firm’s portfolio comprised of nine shophouse investments and a the total of thirty shop lot was valued at $400 million. Six years later 8M has built up 30 shophouse investments spread across 72 shop lots as well as the entire portfolio worth approximately $1.4 billion in the present.
“We believe in being an long-term investment,” says Manchharam. “8M is an unlisted property firm that aims to own properties for a long period of time.” It is funded entirely by its own funds and backed by his own institutional investors and from outside the country. “We have not had to conduct any fundraising outside of the company,” he adds. “Unlike the case with a property fund, we’re not required to sell at a specific time, in the event that we consider an property that is not core for our investment portfolio.”
Many had anticipated a surge of foreign buyers into the conservation shophouse market particularly in light of the property cooling measures that went to effect on the 27th of April. Based on property agents there is a lot of the desire to purchase conservation shops with a wide range of foreign buyers who hail from China, Hong Kong, Taiwan, India and Indonesia.
Local investors are active, according to PropNex’s Tan. “Prices are higher than they were in the past. Local buyers cannot be able to accept these costs.” The interest rates are also rising, says Tan and that means higher cost of borrowing. Today, transactions are controlled through “all-cash customers or people who use only a small amount of leverage”.
One of the buyers one of these buyers is 8M that bought the four-storey conservation shophouse on 28 Stanley Street for $29 million in April, in a deal that was facilitated by JLL. The property is located on an undeveloped freehold site with a total area of 1,729 square feet with a total floor space of 6,485 square feet and was purchased without vacant possession. The property’s value is $4,472 per square foot.
“It’s not inexpensive,” says Manchharam, “but considering what prices are currently the price was a good value.” Manchharam is buying the shop with cash in an all-cash transaction. “No need to purchase an empty building without income or earning and also paying high interest costs. We are hoping that interest rates decrease, so we can refinance.”
Based on current market rents and the current rental yields, they are calculated at 2% and borrowing costs are 5% according to Manchharam. This could be the reason for more cautious mood in the market and also the 47% reduction in transactions, from 52 shophouse sales from 1Q2022 to 1Q2023, according to PropNex in their 1Q2023 shophouse report, that was released the 26th of April. The value of deals in 1Q2023 was $278 million, which is an 11.7% drop from the prior quarter, and an 40.6% y-o-y drop compared to 467 million reported in the 1Q2022.
The patience to buy real estate
Despite the current market conditions, 8M has decided to stick to the long-term strategy. “You must be patient when purchasing real property,” says Manchharam, who adds that the acquisition from 28 Stanley Street was not opportunistic. He was following the shophouse located at 28 Stanley Street for five years and waited for the owner to decide whether or not to sell. It was finally put on the market in January of this year. “The owner was a private person who held the property for a long period of.”
8M plans to revamp the shophouse on 28 Stanley Street. The two floors that are on the ground are permitted for use as restaurants and comprise a floor space of around 3000 square feet. “It’s very difficult to find this type of space in the neighborhood,” says Manchharam. “We have several F&B operators who have signed up to lease these spaces.” Two floors on the upper levels are leased out for office space.
He has “some potential synergies” in Solitaire on Cecil which is a brand new freehold, 20-storey Grade-A office development located across the road across Cecil Street with strata-titled floors available for sale. The development is a renovation of the old PIL Building by TE Capital Partners and LaSalle Investment Management. In the latter part of April, the three top floors, spanning levels 17 through 20 were sold at $162.8 million, or an average of $4300 psf across the entire strata of 37,857 sq feet. The highest level (20th) was able to hit a new maximum of $4,325 psf. Savills Singapore brokered the deal.
Nearby 8M has Ten Stanley Street, which it purchased in June 2016 for $9.2 million. It’s now an office that is serviced.
An additional property that Manchharam was eyeing since “a for a long period of period of time” was the five shophouses located at the 109-117 Jalan Besar. In September, 8M scooped up the five shophouses worth $40 million, in a deal that was negotiated by Simon Monteiro, associate vice president of List Sotheby’s International Realty. The five shops are situated on a 6,584 square foot site with a lease of 999 years beginning in 1926.
The selling company is TSG Group, founded as Teo Siok Guan Pte Ltd in the year 1950. Teo Siok Guan had previously been the owner of Guan Hoe, the distributor for Suzuki motorcycles in Malaysia and Singapore during the 1960s. In the course of more than fifty years, TSG accumulated an extensive real estate portfolio. In 2017 TSG Group offered its portfolios of shophouses in Tembeling Road and Joo Chiat Place to be sold. The shophouses located in Jalan Besar were the last to be offered for auction. “But we were aware of the possibility because we’d been watching it for the past 5 years,”” manchharam says. The property never went on the market, however 8M was the first to buy it prior to it being listed for sale.
In the latter half of 2022 8M Real Estate scooped four more shophouses located at 25, 27 29 as well as 31 Tanjong Pagar Road for 75 million. The buyers were two companies, Silkroad Property Partners and Clifton Partners, who owned two shophouses. 8M’s purchase price was $3700 to $3,800 psf, based on the GFA for all four shophouses, which had 99-year leases beginning in 1994.
“The value of 99-year leasehold shophouses within areas like the Tanjong Pagar area are now at the upper end of $3,000 to $4,000 psf” Manchharam adds. The purchase of four shophouses located at 25-31 Tanjong Pagar Road gave 8M Real Estate ownership of the entire row of shophouses that are bookended by the 15 Tanjong Pagar Road and 43 Tanjong Pagar Road.
The shophouses had been acquired located on Tanjong Pagar Road in three blocks over the course of five years. 8M made the initial bulk purchase of five adjoining shophouses on 15,17 19, 21, as well as 23 Tanjong Pagar Road for $57.4 million in March 2018. Based on a GFA of 26,500 sq feet which works out to $2,166 per sq ft.
The five shophouses located at between 15 and 23 Tanjong Pagar Road were purchased from property investor Stanley Quek as part of the portfolio comprising seven shophouses, for $81.4 million in the year 2018. Other shophouses included the 18 Gemmill Lane ($11 million) and 71 Neil Road ($13 million).
8M made a third bulk buy of 6 shophouses located at 33 35, 37, 39 43 and 41 Tanjong Pagar Road for $80 million in February of 2019 in accordance with an agreement to caveat. The buyer of the shophouses was Arcc Holdings CEO Tony Chen who is a long-term buyer of conservancy shophouses. “We made a swap deal which involved buying 33-43 Tanjong Pagar Road from him and then we traded to him the 70 Neil Road, next to the property that he owns,” Manchharam explains.
The four remaining shophouses located in central part of row, at 25-31 Tanjong Pagar Road purchased late in the year, the whole row is now an GFA of 80,000 square feet and 50,500 sq ft is office space and 30,000 sq feet of retail space. The estimated value of the property is $350 million, which is “by the far our biggest asset at the moment” Manchharam believes. Manchharam.
The portfolio comprised five 999-year leasehold shops at Boat Quay and Circular Road for $45.5 million, or $3150 per square foot with the GFA of 14,445 sq feet. The shophouses are comprised of a land area of 6,002 square feet spread across the the 61 Boat Quay, 77 Boat Quay 17, Circular Road, 45 and Circular Road.
The only commercial building that was included in the portfolio was a five-storey freehold property located at 23 New Bridge Road, which is situated next to four 99-year leasehold shophouses in conservation at 27 29, 31, as well as 33 New Bridge Road. The purchase price of 8M for the properties located on New Bridge Road was $37 million.
Repositioning assets, selling non-core assets, and selling
However, 8M has sold three of the shophouses that comprise the portfolio. The first was the 61 Boat Quay for $11.2 million in June 2021. It was then 17 Circular Road for $10.7 million in October 2021. Then there was the 77 Boat Quay for $16.188 million during the 1Q2022 period. The three shophouses are individual parts and, as such “non-core assets” Manchharam says.
8M has retained the adjoining units located at 45 and 46 Circular Road, as well as the corner block that runs from 27-33 New Bridge Road. The section of shops along New Bridge Road will likely be worth more than 100 million dollars.
A rear extension has been added to four shophouses located at 27-33 New Bridge Road as part of their transformation into an elegant boutique hotel with 48 rooms. The design was created by the renowned architectural firm Woha the hotel will feature an outdoor pool on the roof as well as a lush garden on the third level, as well as two eateries on the first level. Manchharam keeps the property hidden for now and is planning to unveil the building later in the year. “It could be considered one of the most iconic structures, similar to that of the Eu Yan Sang Building on South Bridge Road,” Manchharam says. Manchharam.
8M bought 8M purchased the Eu Yan Sang Building across four shophouses that are conservation in the areas of 265 2, 267, 269 as well as 271 South Bridge Road in December of 2019. It was the seller, Eu Realty, who sold the property under a lease of 199 years which is despite the fact that the property has a lease of 999 years.
After the renovation of the property and co-working space, The Great Room has leased the Eu Yan Sang Building for 10 years. The co-working space was officially opened in April and has 22,000 square feet spread across four floors. In the words of Manchharam, 8M signed a 10-year contract in conjunction with The Great Room.
Apart from the hotel with 48 rooms that is planned located at New Bridge Road, 8M also has three other hospitality-related properties: Ann Siang House located on Ann Siang Hill, Kesa House located on Keong Saik Road as well as Wanderlust located on Dickson Road in Little India. The world’s largest serviced apartment provider Oakwood Worldwide has managed these properties as part of The Unlimited Collection since the beginning of 2019.
On July 20, 2022 CapitaLand Investment acquired Oakwood from Mapletree Investments for an undisclosed amount. This acquisition Oakwood will bring the management of 8M’s Unlimited Collection into CapitaLand’s lodging business division, Ascott.
8M also has shophouses on Hongkong Street and Gemmill Lane, owned through Cove as co-living apartments. 8M also has 70 to 72 Boat Quay, three adjoining three-storey buildings that it bought for $23 million in May 2017. The shophouses are built on an area of 8,600 square feet in the top floors. They were recently let to a hostel operator according to Manchharam.
The co-living, hospitality, and serviced apartments sector contribute to only 20% of 8M’s total revenue according to Manchharam. Around 40% of the revenue is derived from office space, and an additional 40% comes from retail and F&B% of it comes from retail, and F&B. “Our portfolio is primarily retail and office space,” he adds.