Corporate: Cover Story-- Piecing together a property empire

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The record price of RM7,209.80 per square foot (psf) that Datuk Desmond Lim Siew Choon paid for a piece of land in Jalan Bukit Bintang has turned the low-profile but well-connected businessman into someone to watch in Corporate Malaysia.
This is especially after the 50-year-old, who is usually accompanied by a phalanx of bodyguards, supposedly edged out the cash-rich YTL Group to secure the parcel that measures 29,127 sq ft.The seller was Millennium & Copthorne Hotels plc (M&C) which is controlled by Singapore’s Kwek Leng Beng via his 53%-owned City Developments Ltd.
Property industry observers say the Hong Leong group, which is controlled by Kwek’s cousin Tan Sri Quek Leng Chan, also expressed interest in the piece of land but pulled out after the bidding war escalated.
Lim’s name does not appear anywhere in the transaction. But it is a well-known fact among industry players that he controls Urusharta Cemerlang (KL) Sdn Bhd, the company that paid RM210 million for the parcel that was initially slated for a RM500 million serviced apartment development to be known as Millennium Residence.
Urusharta Cemerlang’s chairman is Tan Sri Zainol Mahmood, who is also the chairman of Pavilion Kuala Lumpur Sdn Bhd. Zainol is also a director of Urusharta Cemerlang Development Sdn Bhd, the company that owns 51% of Urusharta Cemerlang (KL), while the Qatar Investment Authority (QIA) owns the remaining 49%.
Like for most low-profile businesses, the ultimate shareholding of Urusharta Cemerlang Development is unknown. According to a companies search, the ultimate shareholder of Urusharta Cemerlang Development, which has an issued capital of RM29 million, is British Virgin Islands-based Primehill Investments Ltd.
However, Lim had a hand in the Pavilion KL project via Malton, which was the project manager for the development which is located next to the piece of land acquired by Urusharta Cemerlang.In fact, Lim got his first big break from developing Pavilion KL, which is sited where the Bukit Bintang Girls School (BBGS) used to be.
Some 11 years ago, when Lim took over the redevelopment of the BBGS land via a privatisation project, the country was still reeling from the Asian financial crisis.
Funding was hard to come by, forcing the original owners of the project to sell out. The privatisation of the 12.6-acre land that was deemed the last piece of meaningful property development in Kuala Lumpur was initially given to several well-connected personalities via private companies Urusharta Cemerlang and Inai Jaya Sdn Bhd.
At the time of privatisation, Urusharta Cemerlang was a vehicle controlled by the late Datuk Seri Wan Adli Wan Ibrahim who sat on the board of several Berjaya Group companies. Wan Adli shared a passion for horse riding with former prime minister Tun Dr Mahathir Mohamad.
It is said Lim got the piece of land cheap because of the tough funding environment. He managed to raise private funding for the conversion of the land and erect a new building elsewhere for BBGS.At the time, Lim was largely unknown. His company, Paracorp Bhd, which has since been delisted, was better known than its owner. The other vehicle linked to Lim is Malton, which took over the listing status of Gadek Capital Bhd.
But Malton was not and has not been a stellar property player so far, unlike its major shareholder who has hogged the limelight in the past year for his involvement in some of the biggest property ventures in the country. Lim’s name has also cropped up in the Bakun Hydroelectric Project. However, he declined to comment when contacted by The Edge (see accompanying story on Malton).

Financing Pavilion KLAlthough Lim was little known then, his wife’s brother, Tan Sri Robert Tan Hua Choon, was (and still is) a familiar face in corporate circles. Tan is said to be a close associate of former finance minister Tun Daim Zainuddin and controls several listed companies.
Despite his connection with Tan, many did not think Lim would make much headway in the property sector, given that securing financing for the Pavilion KL project was tough.
When most banks rejected him, RHB Bank came to his aid, something that became somewhat an issue for the bank’s then-executive chairman Datuk Seri Sulaiman Taib. The loan to fund Pavilion KL was said to be one of the reasons for the central bank’s decision not to renew his tenure as executive chairman of RHB Capital Bhd in 2005.
Sulaiman left the bank after Cahya Mata Sarawak Bhd sold its stake to the Employees Provident Fund (EPF). The loan did not go bad, thanks to the upturn in commercial property prices.
When Lim embarked on the Pavilion KL project in 2001/2002, commercial and residential property in downtown Kuala Lumpur was transacted at less than RM500 psf, according to industry officials. Hence, his entry cost was low.
But when the project was completed in mid-2008, prices had shot up four times to about RM1,800 psf.
Lim’s big payout came when Kuwait Finance House (KFH) not only took up a 49% stake but also bought both the condominium blocks in the project. It was KFH’s first property venture in Malaysia.It is said the proceeds from carving out the 49% stake and selling the two high-end condominium blocks were enough to fund the entire project, leaving Lim with little to worry about in terms of financing.
The other components of the project are a seven-storey retail podium block offering 1.37 million sq ft of retail space, an office tower and a proposed six-star boutique hotel.
In 2006, KFH sold the condos in one of the blocks at RM1,100 psf. Some 90% of the buyers were foreigners and the units were taken up within six months. It sold the whole of the second block of condos to a German property fund two years later.
Before the financial crisis struck in 3Q2008, the properties in the Pavilion KL project were going for more than RM1,800 psf.
KFH’s 49% stake was later sold to a fund under QIA. That was the beginning of a long-standing relationship between Lim and QIA. They formed a platform from which they ventured into several major property development projects in Malaysia.   

A plethora of projectsArmed with the cash pile from the Pavilion KL project, Lim has set his sights on bigger things in Malaysia and even in China. It is said he has been building several “Pavilions” in the republic.
“He travels to China often. But when he is required to attend meetings in Malaysia with key people, he comes back,” says an industry player.
Locally, the biggest venture between Lim and QIA is the proposed redevelopment of the RM5 billion Sungai Besi Airport land, which currently houses the Royal Malaysian Air Force (RMAF) base. The principal developer of the RMAF project is 1Malaysia Development Bhd (1MDB).
However, the approvals for and shareholding structure of the project have not been firmed up yet.What seems more certain is Lim’s involvement with Abad Naluri Sdn Bhd — the company given the mandate to develop the now-shelved RM25 billion Penang Global City Centre (PGCC).Lim has denied holding any interest in Abad Naluri but sources say the latter has assigned the development rights of its projects in Penang to companies linked to him.
“When there are negotiations with the top officials of the state government, Lim is there. He comes down to meet the top state officials even if he is in China,” says an industry official.
“He does not say much during the meetings but before he leaves, he has a private conversation with the top officials,” he adds.
Abad Naluri used to be the vehicle of Datuk Patrick Lim of Equine Capital Bhd. He had planned a mega-development at the Batu Gantong turf club on Penang island before a change in state government after the 2008 election scuttled his plan.
The Penang Turf Club (PTC) project is unlikely to take off as it is politically explosive.
In Kuala Lumpur, apart from the RMAF base project, Lim is said to be eyeing the development of Chulan Square and the Seri Melayu Restaurant on a joint-venture basis. Chulan Square comes under the City Hall while the land where the Seri Melayu Restaurant is located belongs to Tan Sri Azman Hashim of the AmBank group.
If Lim is successful, he will control a massive piece of development stretching from Fahrenheit 88 to Seri Melayu. It is said there are plans to build a link between the buildings, creating a mega-mall in the city. (Lim also has an interest in Fahrenheit 88 which was previously known as KL Plaza.)
This explains why he forked out a hefty sum for the piece of land in Jalan Bukit Bintang.

Dazzling priceIndustry observers have touted the RM7,209.80 psf transaction as exceptional, but not necessarily for the right reasons. Various quarters have come out to say that the deal is not reflective of market value, given that parcels of land in the vicinity have been transacted at about RM2,200 psf over the last two years.
The exorbitant amount paid for the land has set tongues wagging, but the main reason the price went through the roof could simply be Lim’s intention to win the bidding war.
YTL Group’s Tan Sri Francis Yeoh was said to be interested in acquiring the land as the crowds have been migrating from Starhill Gallery and Lot 10 Shopping Centre — which cater for very high-end shoppers who probably account for 1% of the population —  to Pavilion KL.Yeoh had reportedly offered up to RM6,000 psf and had plans to build another retail complex on the land.
However, Lim purportedly got wind of the deal and moved to top Yeoh’s bid.
The competition between the two businessmen has been intense. According to industry players, when Pavilion KL was being built, YTL Group had complained that cracks were appearing on its buildings because of the Pavilion development across the street.
Coming back to the staggering price, property pundits are still scratching their heads over the high premium paid for the land.
RHB Research Institute Sdn Bhd, in a recent note, says it believes the high price was due to the value-added advantage and development potential of the land to integrate with Pavilion KL.
Other uses for the land include building an access road between Jalan Bukit Bintang and Jalan Raja Chulan, providing a link to Fahrenheit 88, which is also operated by Urusharta Cemerlang, or building additional parking bays for Pavilion, it says.
“But any way you look at it, this deal does not make sense financially,” says a property analyst who declined to be named when discussing the options.
“Even at a plot ratio of about 10 times and 75% efficiency, the underlying cost of the development will be well over RM1,000 psf. This is even before factoring in construction costs, other expenses and a profit margin, which could push the selling price above RM3,000 psf.”
This view is shared by another research house, although its estimates are more conservative.“Assuming a plot ratio of five times and construction cost of RM500 psf, the new mall could cost RM90 million  to RM100 million to build. This would leave RM110 million to RM120 million for the land and the narrow road in between, potentially valuing them at RM3,000 psf,” it says.
It adds that it is likely that the land comes with conditions precedent as the completion date is estimated to be by the end of 2QFY2012.
“The price tag could include the acquisition of the narrow road between the aforesaid land and Pavilion [belonging to the government] and construction cost for a new mall [which could be eventually linked to Pavilion and Fahrenheit 88 just across the road],” it says.
Will the recent deal drive up land prices in the surrounding areas?
A few brokerage firms and property players certainly believe so, although industry observers are not convinced.
“It could be that with this being one of the last few empty land parcels in the area, the parties may be trying to drive up the prices in the area as they may own more than one plot of land,” says an analyst, adding that although land values in Kuala Lumpur are on their way up, the transacted price was “above and beyond” prevailing market values.
He adds that if high-end residences were developed in lieu of a retail complex, the highest price on record was about RM1,800 psf for units at The Binjai on the Park, which was developed by a subsidiary of KLCC Holdings.
“Occupancy rates around the KLCC area are still not at optimal levels. If they were to develop office buildings instead, it would still not make any sense as there is already an oversupply in the office market, and more buildings are expected to come up,” he says.
According to a quarterly report on the Kuala Lumpur office market by CB Richard Ellis (CBRE) (Malaysia), another 1.7 million sq ft of office space is scheduled to be completed by end-2010, including Hampshire Place Corporate Office Tower and Menara Worldwide in the Golden Triangle, Capital Square Office Tower 2 in the central business district, and the BRDB Office Tower and One Mont’Kiara in suburban Kuala Lumpur.
The real estate adviser estimates another 3.5 million sq ft of office space to be completed in Kuala Lumpur in 2011, with an additional 4.9 million sq ft in 2012, and plans a further 11 million sq ft beyond that. In terms of outlook, CBRE expects supply to accelerate from 2H2010 until 2013.
“With regard to commercial space, it is understood that even some malls in Kuala Lumpur don’t have tenants lining up. In fact, it is understood that the management of Pavilion KL would prefer to have some better-quality tenants,” says the analyst, adding that despite this, Pavilion KL enjoys 99% occupancy with average rents of up to RM60 psf per month.
“With so much commercial space already existing in Kuala Lumpur, one wonders how sustainable it will be to be involved in yet another retail development,” he adds.

Sustainability the keyConsidering that supply will exceed demand, sustainability and having deep pockets to weather the oversupply situation in the property market will be the key.
Lim has shown persistence. He has survived not one but two downturns — in 1998 and 2008. He has come out looking better after both economic downturns. In fact, his pieces of land have grown with every downturn.
Politically, Lim is also well connected and is said to have hedged his bets well. He was said to be close to former prime minister Tun Abdullah Ahmad Badawi as well and is said to be known to Prime Minister Datuk Seri Najib Tun Razak.
In Penang, it is said he has had several meetings with Chief Minister Lim Guan Eng, something that most other property developers could not even muster.
But the overriding factor in Lim’s climb up the property ladder is sustaining his developments, even in tough times. Most property developers at some point or other tend to read the market wrong. Could Lim be different?

This article appeared in Corporate page of The Edge Malaysia, Issue 825, Sep 27-Oct 3, 2010