This article first appeared in The Edge Malaysia Weekly, on March 13 - 19, 2017.

BLACKROCK Inc is in talks with potential buyers on the sale of Vista Tower — the New York-listed asset manager’s last asset within The Intermark, an integrated development in Jalan Tun Razak, Kuala Lumpur. Industry sources say the asset may be sold for RM440 million to RM470 million.

The pricing, property experts say, is based on estimates that a deal may be executed for between RM800 and RM850 psf for the Grade A office block with 550,000 sq ft of net lettable area.

“Negotiations with potential buyers ...  continue and we are pleased with the interest to date. While we do not have specific details to share at this stage, we are committed to achieving the best outcome for our investors,” John Saunders, head of Asia-Pacific for BlackRock Real Estate, tells The Edge in an email response. Saunders did not address the question of price.

He adds that Vista Tower has been repositioned as a high-end office tower following a major refurbishment.

The other three components within The Intermark — a hotel, a mall and an office tower — were sold in 2015. BlackRock raked in RM1.597 billion from the sale of DoubleTree by Hilton, the Intermark Mall and Integra Tower.

Should Vista Tower be sold for RM440 million, or RM800 psf, the sale price of the entire development would amount to RM2.037 billion. This sale will also mark BlackRock’s exit from Malaysia.

According to industry sources, when The Intermark was put up for sale in 2014, the initial asking price for Vista Tower was about RM1,000 psf. But the price is said to have slid since then. “It is in the RM800 psf range now,” an estate agent says.

“BlackRock may settle for a sale at between RM825 psf and RM850 psf,” another estate agent suggests.

The Edge understands that the building’s occupancy rate is 75% to 80%. The 62-storey Vista Tower has a gross floor area of 755,000 sq ft and offers floor plate sizes of 11,500 sq ft.

Checks with several property agents reveal that the reduction in the psf price may be because the fund expires by year-end. It is learnt that the fund obtained approval for a two-year extension from 2015 from its investors. Saunders did not address issues related to the extension and expiry in his email response.

The psf price may have also declined as the supply of office space in the Klang Valley has been increasing. CBRE|WTW, in its 2016 Asia-Pacific Real Estate Market Outlook, Malaysia, report — which was released in January — says an additional 1.65 million sq ft of purpose-built office space was expected by end-2016, so the Klang Valley continues to be a tenant’s market. No fluctuation in rents was expected but landlords and building owners were expected to be more aggressive in attracting tenants. This year, office space is expected to grow 3.3% from 103.5 million sq ft last year.

Nevertheless, the report says, “High quality prime offices will continue to perform well and, in terms of investments, the office market is expected to sustain interest from foreign investors who are exploring and are interested in investing in Malaysia. It is made more attractive by the weak ringgit and slower growth in the European countries, China and the US.”

Interestingly, industry sources say potential buyers of Vista Tower include a Middle Eastern sovereign fund and US-based Lone Star, a global private equity firm that invests in real estate, equity, credit and financial assets. However, Lone Star declined to comment on whether it was exploring investments in Malaysia when asked by The Edge.

The Intermark used to be City Square Centre, a landmark in Kuala Lumpur. In 2006, Macquarie Global Property Advisors (MGPA) of Australia purchased City Square Centre for RM680 million from AP Land Bhd. City Square Centre comprised the 62-storey Empire Tower, 571-room Crown Princess Kuala Lumpur hotel and six-storey City Square Shopping Centre. Subsequently, MGPA, through its MGP Asian Property Fund II, also purchased Plaza Ampang located next door. The entire redevelopment project that saw The Intermark take shape cost a reported RM1.2 billion.

Plaza Ampang was demolished and today the Integra Tower stands in its place. The Crown Princess Hotel has been replaced by The DoubleTree by Hilton and City Square Shopping Centre is now the Intermark Mall. Vista Tower is the refurbished Empire Tower. BlackRock acquired MGPA in 2013, soon after the completion of the project.

In April 2015, the Grade A, 39-storey Integra Tower was sold to Kumpulan Wang Persaraan (KWAP) for RM1.065 billion. Integra Tower is a 760,715 sq ft office building with 850 parking bays. KWAP’s purchase of the asset from BlackRock’s The Intermark Sdn Bhd also included a three-year rental yield guarantee of 6%. Subsequently, BlackRock cancelled the guarantee and paid KWAP RM16 million up front for the guaranteed amount. This deal was touted as a record sum for a single office building.

The second sale that took place in the same month was that of 450-room DoubleTree by Hilton to Royal Group for RM388 million or RM718,000 per room. In December 2015, the mall component was disposed of to Pavilion Real Estate Investment Trust for RM160 million.

What will happen if BlackRock does not get a good deal for Vista Tower? Industry players say it may still have the option of seeking another extension, especially given the current soft property market.

“It could also sell the asset to another one of its funds,” an industry player suggests.

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