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Investors may have gotten into deep water at The Residences at W Sentosa
Blackstone has sold its interest in an upscale apartment complex in Singapore’s Sentosa Cove to BlackRock in a deal described by market analysts as a stressed sale of the financial rights.
Having invested S$367 million ($276 million) in a profit participation scheme linked to Sentosa’s Quayside Collection mixed-use development in 2014, Blackstone had retained the rights to cashflows from the residential portion of the project for nearly a decade, despite prices for units in the project having declined around 41 percent since their peak.
With analysts estimating that Blackstone, which invested in the profit participation scheme through the first edition of its Tactical Opportunities Fund, having acquired its economic interest in the apartments of The Residences at W Sentosa at around S$2,400 per square foot, local property databases put current pricing for units in the elite residential compound at around S$1,747 per square foot, severely limiting financing options for the asset.
BlackRock is said by market sources to have paid the equivalent of S$1,200 to S$1,300 per square foot to acquire Blackstone’s rights under the profit participation scheme in the deal which closed in October. Blackstone funds are understood to typically have eight year durations, with an option to extend for another two years, with the vehicle invested in the CDL scheme having closed fund raising in 2012.
Financial Innovation
CDL had announced the profit participation scheme nine years ago as a way for investors to capture cashflows from the Quayside Collection’s W Singapore – Sentosa Cove Hotel and Quayside Isle shopping centre, in addition to the condo element.
Then Blackstone senior managing director Kishore Moorjani had led the investment in 2014
The developer reportedly sold about 25 condos in the development prior to monetising the complex through the profit participation scheme.
Alongside Blackstone’s S$367 million commitment, Malaysia’s CIMB Bank contributed S$102 million and CDL S$281 million, according to a 2014 Straits Times interview with former Blackstone senior managing director Kishore Moorjani, who led the firm’s tactical opportunities strategy for Asia at the time. The club deal also took on an additional S$750 million in senior loan facilities from DBS Bank and Oversea-Chinese Banking Corp.
As part of the scheme, CDL guaranteed its backers fixed payouts of 5 percent for five years with the three firms eligible to share in proceeds from any sales of the properties after five years, while CDL retained title to the assets, according to the media account.
The developer had repurchased the financial instruments linked to the hotel and retail portions in a S$393 million deal in 2019, according to company documents at the time, but The Residences at W Sentosa remain under the control of the Profit Participation Scheme as prices for the properties have failed to meet expectations.
CDL went on to establish at least two more profit participation schemes, a S$1.1 billion programme backed by a trio of office assets set up in 2015, and a S$978 million arrangement linked to its Nouvel 18 project on Anderson Road in 2016.
Island Apartments Under Water
With CDL as manager not allowed under the terms of the scheme to sell the approximately 203 apartments in the portfolio for less than S$2,400 per square foot, the assets have remained in the scheme as prices for the luxury homes have averaged around 27 percent less than that figure, according to data from PropertyGuru and EdgeProp.
The Quayside Collection launched sales of its condo element during the same year that Resorts World Sentosa opened as Singapore’s first casino in 2010, with the highest price paid for an apartment in The Residences at W Sentosa being set at S$2,968 per square foot during that inaugural year of marketing.
Working against the property is its location across a causeway from the rest of Singapore, its 99 year leasehold status, which has around 80 years remaining, and the large size of the units, with homes currently for sale in the property ranging from 1,238 to nearly 7,000 square feet.
Rents in the complex range from S$4.49 to S$6.97 per square foot per month, according to agency data, with the entire apartment complex measuring approximately 39,170 square feet (40,800 square metres) in gross floor area.
With the slide in value for the Sentosa apartments, senior lenders would demand a top up of the loan to value ratio at set milestones in any financing package, or in the event of refinancing, with the profit participation scheme being ranked after senior instruments in terms of repayment, according to banking industry source who spoke with Mingtiandi.
These conditions, combined with the ageing of the Blackstone vehicle which originally backed the scheme, left the investment manager with few attractive options for disposing of its interest in the residential project.
Blackstone representatives declined to comment on the transaction while BlackRock had not responded to inquiries by the time of publication.
Since closing fund raising on its first tactical opportunities fund in 2012, Blackstone now has four strategies under the series including the Blackstone Tactical Opportunities Fund IV which closed on $5.2 billion in equity in August of last year.
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