Published April 1, 2009

Commercial property sector faces $20b issue

Sector seen having to deal with pressing issue of refinancing

By ARTHUR SIM

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SINGAPORE'S commercial real estate sector, including the Reit sector, will have to deal with the pressing issue of refinancing $19-20 billion of debt this year.

Mr Mitchell: 'Reits have been affected... , but longer term, the model offers a number of attractions, including greater liquidity.'

Peter Mitchell, CEO of the Asian Public Real Estate Association, said about $11 billion can be attributed to commercial real estate companies and Reits, and the remaining $8 billion to non-listed vehicles such as private property funds.

Reits account for a small portion and he estimates only about four Reits here still need to arrange refinancing, he said.

Speaking at the Cityscape Connect Business Breakfast event yesterday, Mr Mitchell added: 'Reits have been affected like many other investment classes, but longer term, the model offers a number of attractions, including greater liquidity.'

One private property fund that faces refinancing this year is the Mapletree Industrial Trust (MIT), in which Arcapita has a 56.5 per cent stake.

Also speaking at the Cityscape event was Blake Olafson, director and head of real estate Asia at Arcapita.

Earlier this month, MIT said it would have to go back to its investors for a $140 million capital injection, largely because the valuation of its properties had fallen and a loan being extended was smaller.

Giving some insight, Mr Olafson said refinancing of a bridging loan to finance MIT's $1.71 billion acquisition of assets last year will be due soon, but whether MIT's investors will have to inject capital is not a certainty. 'This will depend on the banks,' he said, referring to the refinancing terms.

Mr Olafson thinks the industry here will take the credit crunch in its stride as there is more acceptance of low loan-to-value ratios.

He said that generally, higher equity ratios will help stabilise the market, unlike in the US where 95 or 100 per cent debt financing is the norm. 'In the US a 50-60 per cent loan is considered as no liquidity,' he added.

Alan Dalgleish, executive director of CB Richard Ellis, said: 'The overall quality of lending has been higher in Asia than some of the things that have happened in Europe and the US.'

While Mr Dalgleish believes in the long-term strengths of the property market here, he does feel there could be a residential supply overhang.

'We haven't seen the impact of the (collective sale) sites washed through the system yet,' he said, adding that this could take another two quarters.

He also believes there is a 'reality check' coming as more sellers accept that prices have to come down to levels acceptable by the market.