City & Country: Nu landmark in Brickfields

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KL Sentral, Malaysian Resources Corp Bhd’s (MRCB) integrated development valued at RM12 billion, needs no introduction. It is familiar ground to the 130,000 to 150,000 people who commute daily by light rail transit (LRT), KTM Komuter, KL Monorail and Express Rail Link (ERL), which are all connected to the RM1.1 billion transit hub Stesen Sentral.

MRCB’s CEO Mohamed Razeek Hussain puts it aptly: “All rails lead to KL Sentral.”

Its denizens include a 25,000-strong working populace that occupies the various high-rise offices there. It houses the headquarters of UEM Group Bhd, the Malaysian Investment Development Authority and the Companies Commission of Malaysia, as well as companies that want to take advantage of its MSC status.

 
 
 
 
 
 
 

KL Sentral is also the playground of the residents of the 1,000 or so luxury condos within its limits.

The 28.8ha KL Sentral is just a 20-minute drive from the central business district, which has a market of about 3.5 million people. Thus, it did not take MRCB long to decide on building a mall in KL Sentral to cater for the market.

Nu SentralThe retail launch of Nu Sentral took place on Aug 6. It is coming up on the 8.5-acre Lot G directly opposite the Hilton KL and Le Meridien hotels across from Stesen Sentral. Besides the mall, Lot G will feature three office towers and a hotel.

The 7-storey Nu Sentral and adjoining 27-storey office tower have an estimated gross development value (GDV) of RM1.4 billion and are being jointly developed by MRCB and the government’s real estate investment company Pelaburan Hartanah Bhd (PHB) on a 51:49 basis. The other two office blocks and hotel are being developed by Excellent Bonanza Sdn Bhd, a joint venture between MRCB and London Stock Exchange-listed Aseana Properties Ltd.

Why Nu Sentral? “It’s a play on the word ‘new’. Like how the New Yorkers say it — ‘nu’,” says a smiling Razeek, feigning a New York accent.

In keeping with KL Sentral’s tradition, all its projects have the word “Sentral” in their names. “So, this is our new mall and Nu Sentral seems to be catchy. It stays in the mind and is a nifty name for a mall,” Razeek tells City & Country.

The mall comes with green features to reduce energy consumption, with lighting and ventilation designed to achieve this goal.

It also has emissivity glass to prevent the build-up of hot air in the building, which gives rise to the greenhouse effect. The building is Malaysian Green Building Index-certified and Singapore Green Mark-compliant. “I think that at this material time, it is the first green mall in the country,” he says.

Razeek says the biggest energy consumer in a building is the cooling system (60%), followed by lighting (30%) and other functions, such as lifts.

Nu Sentral has a gross floor area of 1.145 million sq ft and a net lettable area of 650,000 sq ft. Its anchor tenant is Parkson, which will take up 138,128 sq ft. The mall will also house a supermarket, an electronics and IT centre, a cinema, bowling centre, karaoke lounge and amusement centre, as well as a hobbies and leisure section. Food and beverage outlets, clothing stores and an event area complete its future offerings.

Razeek says the mall is targeted at KL Sentral commuters, the working populace and residents.

“We have some interesting data from our surveys on the household income of commuters and office workers here. We were surprised to find that commuters have a rather high household income of an average RM5,300; we had expected RM3,000. Household income within a 20-minute radius averages RM6,700 a month. The office population earns an average of RM9,000 a month. So we decided to target the mall at the mid to high-income group.

“Commuters are moving to a more executive level. Our survey also shows that more people in managerial positions are taking the trains,” he adds.

The ERL commuters from the KLIA, on transit to their next flight, represent another untapped market. The ERL sees about 5,000 to 8,000 transit passengers a day at KL Sentral. Razeek says these commuters are good targets given their high discretionary income.

Meanwhile, the Federal Territories Ministry has mooted the idea of ERL commuters spending a few hours on a short tour of the city while waiting for their next flight. The Immigration and Customs Department as well as Kuala Lumpur City Hall are working together to enable this, Razeek says. “They can tour KL for a few hours and return to the KLIA or they can spend time at our mall. We will display information, vis-à-vis their ERL and flight schedules, and so on. So wherever they are in the shopping complex, they can tell when their train is leaving and stay an extra 15 minutes or half an hour or so,” he adds.

This whole concept has enticed four potential tenants to approach MRCB to become the mall’s anchor tenants.

“Anchor tenants are generally demanding — ‘you come to me because I bring in your crowds!’ But this is the only shopping centre, in my experience, that could get four potential tenants to come and pitch for it. One of them even proposed to manage the whole complex!”
Rents for retail space are expected to be between RM8 and RM25 psf, with those for larger outlets on the lower ground and ground floors ranging from RM20 to RM30 psf. Rents on the upper floors will start at about RM8 psf.The group plans to keep its portion of the mall on its books for the long term for recurring income. Construction began in April 2009 and completion is slated for December 2012.

Office towers and hotel in Lot GJoining Nu Sentral is a slew of other new projects in KL Sentral. Currently under construction are properties that have a combined GDV of RM7.5 billion and a gross floor area of 3.4 million to 4 million sq ft, says Razeek.

Lot G, with Nu Sentral as the grand dame of the development, is a hive of activity. Adjacent to Nu Sentral is a 27-storey office tower, a LEED (US-based Leadership in Energy and Environment Design [Silver])-certified office building which will be managed by Promising Quality Sdn Bhd, a wholly-owned subsidiary of PHB. It has a gross floor area of 563,000 sq ft and net lettable area of 440,000 sq ft.

PHB’s CEO Kamalul Arifin Othman tells City & Country that it is talking to several potential tenants.

“Responding to the need for more parking facilities, the office tower provides substantially more generous parking provisions. Contiguous to Nu Sentral, there is also the added synergy as the mall’s car parks are accessible to office users/visitors and vice versa, both during office and non-office hours,” he says.

The office tower will also be the only one in KL Sentral to be connected directly to Sentral Station as an air-conditioned link will be built.

On concerns about an oversupply of office space in Kuala Lumpur, Razeek says the fact that rental rates in KL Sentral have breached RM9 psf, which is higher than rents in some offices in the central business district, speaks for itself. He cites Plaza Sentral as an example of where rents were an average RM4 to RM4.50 psf in 2003 but are going for as high as RM9 to RM9.50 psf today.

“All the available office space here is 100% occupied. KL Sentral’s main attraction is its accessibility and connectivity as a transit hub.”

Aseana Properties announced on July 7 that it had entered into a sale and purchase agreement to acquire the business hotel at Lot G from Excellent Bonanza at a consideration of 112.5% of total development cost, expected to be in the region of RM217 million. A RM9 million deposit is payable upon the signing of the S&P agreement, with the balance payable upon issuance of the certification of completion for the hotel. Aseana exercised a call option to purchase the hotel.

According to its statement, Aseana is currently in advanced negotiations with Starwood Hotels and Resorts Worldwide Inc to manage the hotel under its “aloft” brand. The four-star 482-room hotel is expected to be completed in 2H2012. It will have a gross floor area of 350,000 sq ft within 25 storeys.

Adjacent to the business hotel are two office towers that stand at 34 and 45 storeys, with a combined gross floor area of 846,000 sq ft. The two blocks were acquired by Hana Daol Fund Management — the real estate arm of one of South Korea’s largest financial services firms the Hana Financial Group — a few months ago. MRCB declined to say how much it had sold the building for, adding that it was up to the real estate management firm to disclose it. The hotel and office towers share a total built-up area of 1.14 million sq ft.

GSB SentralCurrently under construction in KL Sentral is Lot 348 or GSB Sentral. The LEED Gold-certified building comprises an office tower and 143 residential units and is developed by GSB Sentral Sdn Bhd, a joint venture between Gapurna Sdn Bhd and MRCB, which hold 60% and 40% equity interests respectively.

MRCB recently offered to acquire Gapurna’s stake. This acquisition will be another step towards expanding its landbank in KL Sentral, says Razeek.

International serviced residence manager The Ascott Group Ltd has been given a 15-year contract to manage the serviced suites.

Razeek says Ascott chose GSB Sentral because of the various amenities available at KL Sentral. “Ascott, being Ascott, likes to understand its markets first. And when it saw what we had here, it was quite easy to get it,” he adds.

The office tower will see oil major Shell Malaysia as the anchor tenant, occupying about 60% of the floor space.

“Shell Malaysia receives many visitors and it needs short and long-term stays. Instead of going to the city centre, we said ‘you can come over here’,” says Razeek.

The project, with a GDV of RM900 million, is slated for completion by 2012.

St Regis Hotel and ResidencesKL Sentral now has two five-star hotels — the Hilton Kuala Lumpur and Le Meridien. The latter is a member of Starwood Hotels and Resorts Inc, a major international hotel and leisure group. Adding another patina of prestige will be the St Regis Hotel and Residences, a six-star, 200-room hotel being developed by One IFC Sdn Bhd, a joint venture between CMY Capital Sdn Bhd, MRCB and Jitra Perkasa Sdn Bhd, which hold 60%, 30% and 10% equity interests respectively.

St Regis is renowned for its hospitality, epitomised by its butler service which will be maintained in Malaysia, according to earlier reports. It will have a gross floor area of 1.4 million sq ft and a GDV of about RM1.5 billion.

“Construction is expected to start in 1Q2011,” says Razeek, “with completion by 2015.”

KL Sentral ParkKL Sentral Park, a mixed development comprising transport hubs, hotels, shopping complexes, five office towers, condominiums and green areas spanning 982,000 sq ft, is touted as a campus office park. It is partly financed by a RM400 million commercial paper/medium term notes arranged and advised by Affin Investment Bank Bhd and guaranteed by Danajamin Nasional Bhd.

The park will see MRCB introducing its connected real estate (CRE) product, which is quite simply an IT platform that supports all the necessary technology in communications. This project is slated for completion by 2011.

Lot DOn Lot D will be 722 luxury serviced apartments housed in 50-storey towers. The project has an estimated GDV of RM1 billion. The development, with a total gross floor area of 1.4 million sq ft, boasts views of the National Museum, the Lake Gardens and the city centre. While work is expected to start by year-end, the project will only be launched 36 months before the delivery date, says Razeek.

With these new developments coming onstream, can we expect property values and rents here to be enhanced? Knight Frank executive director Sarkunan Subramaniam says the asking price for office rents in KL Sentral ranges from RM6.50 to RM7.80 psf per month. However, better buildings — such as green buildings — can command a higher price of about RM7.90 to RM8 psf per month.

“The completion of these developments will be staggered over the years, and yes it will bring competition to existing buildings as far as rents are concerned, but rents there will be stable. Capital values will also hold and improve over time as the area becomes more popular, especially upon completion of the shopping centre,” says Sarkunan.

According to DTZ Debenham Tie Leung (M) Sdn Bhd executive director Brian Koh, there will be short-term competition on rents, especially for offices, but the longer-term overall effect of these projects will complement each other and enhance KL Sentral as a premier commercial location with various integrated usage. “Some of the ‘branded’ projects will lift pricing to new benchmark levels.”

The asking rents for prime offices in KL Sentral have been stable, only coming down from RM7.50 before 2008, says Koh, adding that the residential market is quite strong. He cites the Suasana Sentral condo as an example of where rents are an average RM3.50 psf.Going forwardThe last piece of land in the KL Sentral development — its pièce de résistance, as Razeek puts it — is Lot F, a 5.7-acre parcel next to Nu Sentral.

While MRCB has not firmed up any plans for the parcel, its promotional materials have stated that it is designated for three commercial office towers with a total gross floor area of 3.2 million sq ft. With a GDV of RM2.3 billion, work has been slated to start in 2013 and completed in 2016.

Overseas, MRCB is building a 186-unit apartment block with a GDV of RM187 million on a two-acre site comprising 1-room and studio units in Melbourne, within the vicinity of a university. The units are aimed at the student and first-time family population there, given the pricier landed homes in the area.

Razeek says MRCB is also exploring other countries in the region. “We’ll look at China, India, Vietnam possibly, bringing our expertise in real estate and construction,” he says.

The company is also actively looking to expand its landbank. According to Razeek, it has allocated RM380 million of its RM510 million raised in a recent rights issue for landbanks, including the proposed acquisition of Lot 348 from Gapurna.

“We are keeping Lot 348 offices and serviced apartments, KL Sentral Park and Nu Sentral. So we are not exiting KL Sentral. We are here, our assets are here and we will maintain the development and meet expectations.”

Government landOn the development of federal government land, Razeek maintains that MRCB is ready to present its proposals anytime for any site that the government has identified for development. These include 50 to 60 acres in Jalan Cochrane and the 3,400-acre Rubber Research Institute land in Sungai Buloh.

On a personal level, Razeek’s own challenge is to live up to the work of former group managing director Shahril Ridza Ridzuan, whom he credits for the group’s current course.

Razeek was appointed CEO of MRCB on Dec 1 last year, following Shahril’s departure for the Employees Provident Fund (EPF) where he is currently the deputy head of its investment division. The EPF is MRCB’s largest shareholder.

To recap, Shahril was appointed executive director along with Datuk Abdul Rahman Ahmad as managing director in 2001 to turn the debt-laden MRCB around.

The group divested and demerged some of its assets under a restructuring exercise, refining its focus on property development and construction. Prior to the restructuring exercise, MRCB had interests in power and media as well as property and construction.
 
 
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 818, Aug 9-15, 2010.