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City&Country: Cover Story-- Taking the plunge

Taking risks is pretty much what SKN Land & Development Sdn Bhd thrives on, declares Datuk Shamir K Nandy, the executive chairman of its holding company SKN Group.

This property developer — "like some remote, sexy island in Thailand, the real jewel in the crown", according to Shamir — is not one to disregard possibilities.

“We like to take risks more than to see the return. If the gestation period takes a little longer, then it will create more excitement,” says Shamir, whose initials form the name of the group.

Case in point: SKN Land & Development's flagship mixed development, Crest Jalan Sultan Ismail being developed via its subsidiary Crest Worldwide Resources Sdn Bhd, with a gross development value (GDV) of RM500 million, located on Jalan Sultan Ismail (behind the Renaissance Hotel), smack in the heart of Kuala Lumpur.

The Crest Jalan Sultan Ismail is built on a much-coveted piece of land by virtue of its location. However, this parcel was not as alluring in the past. It was mired in a host of legal and social issues, notably squatters, but SKN secured it by putting to good use what it calls its “clean-up” skills. The developer’s current office in Persiaran Lidcol, off Jalan Yap Kwan Seng, was also acquired under distressed conditions and is slated to be torn down to make way for a residential project by the company.

The history
Interestingly, SKN group's history can be traced back to the onset of the 1997/98 Asian financial crisis, when like-minded people from various walks of corporate life — lawyers, accountants and bankers — decided to band together after witnessing the devastation of the stock market.

The six professionals quit their jobs to take on property development projects on a piecemeal basis, collaborating with different developers and landowners at different times.

Seeing no future in the stock market and other financial instruments, the group sought a more stable form of investment and found it in property. They then put together their savings and borrowings from “rich uncles and aunts”.

“If things didn’t work out, at least we would still have the assets,” says Shamir who was previously a director in Autoways Holdings Bhd which was later delisted.

The group pooled their talents to help individual landowners with no expertise in property development to turn distressed land into good, clean assets and exploit their potential.

"That has been our forte, looking at distressed plots. Or rather, assets that would not be considered by the more experienced and well-established developers because they don't want the legal and social complications of squatters and all," Shamir says.

Aside from cleaning up assets, identifying what Shamir calls the “niche within” is also one of their strengths. He says their choice of location was often questioned but his team could often spot where pent-up demand was.

Some of their more “controversial”, for lack of a better word, projects include about 38 semi-detached houses in Bukit Segambut and 47 bungalows in Bukit Tiara in Taman Connaught, Cheras.

Shamir says the value of these properties has appreciated tremendously.

"We sold [the semidees in Bukit Segambut] for about RM450,000 to 620,000 some 10 years ago. Those houses today are changing hands today at about RM1.2 million to RM1.3 million.

“If you had gone into Segambut in 1997, you'd have seen factories and all kinds of businesses, and these rich towkays were living in half-concrete, half-wooden structures. So the moment they heard a developer was coming in with some semidees and bungalows, they just snapped them up because it was convenient for them.

“Likewise, I think a lot of developers realised you could stay in the middle of Sunway and Sungei Way and put in some mega project because the money is already there and is still lying there.”

Buoyed by the success of their piecemeal projects, the team formalised their business partnership in 2007 by setting up SKN Equities & Assets Sdn Bhd. SKN Group came into being in 2008, taking SKN Equities & Assets along with a few other companies under its banner.

The group now comprises 11 companies with interests in real estate, food and beverages, financial services and even energy, although it is a dormant entity.

Crest Jalan Sultan Ismail
Coming up on a 1.71-acre site, Crest Jalan Sultan Ismail consists of a 44-storey residential tower and a Grade A 26-storey office tower. The 288-unit residential tower comprises one-bedroom, two-bedroom, 2+1-bedroom and three-bedroom apartments, “boutique penthouses” and a “super penthouse”, ranging from 616 to 3,543 sq ft in size. As an added feature, each penthouse and duplex has double ceiling heights. Due to its octagonal floor design, each unit is a corner unit, affording tenants extra privacy.

The prices, for both the office and residential units, range from RM1.08 million to RM5.15 million. The 75 office units have not been launched, while of the 288 residential units, 70% have been sold. The remaining 92 residential units are being promoted with the assistance of Asian Finance Bank (AFB), an Islamic bank that is a 70%-owned subsidiary of Qatar Islamic Bank.

Besides relocating roughly 70 squatter families on the distressed land, the group had to navigate a labyrinth of legal and financial paperwork, taking three years to complete the task, says Shamir.

The 300-odd residents of the former Kampung Cendana have since been compensated with RM10,000 per household and relocated to Jalan Cochrane in a joint effort between SKN and Kuala Lumpur City Hall.

Deeming it a resounding success, Shamir says his team managed to avoid confrontation and relocate the squatters without disrupting their daily routines and livelihood.

"A lot of the ti
me, squatters are taken out of the city and relocated to some backyard far from where they were living previously, causing them much discomfort and forcing them to retaliate," he points out.

Nonetheless, acquiring the land was just part of the problem. The original plan had to be revised slightly to comply with new regulations, but it all worked out well in the end.

To tide the project over during the extended gestational period, SKN used its savings, ploughed its earnings from its previous projects into it and partnered with RBTR Asset Management Bhd (formerly known as Rakyat BTR Capital Partners Bhd), a private niche fund manager and an associate company of Bank Rakyat. The fund manager had helped SKN acquire the land. However, the partnership ended in September 2008.

“The venture capital structure is very expensive but we had to sort that out,” says Shamir, adding that the fund manager, had acted as a “mezzanine interim” developer throughout.

Aside from Crest Jalan Sultan Ismail, SKN still had about four acres of land in the city centre from its clean-up activities.

“A tract opposite the Crest was eventually sold to Sunrise Bhd to make some profit and we invested that in the  project,” Shamir says.

“As much as we would have liked to hang onto the assets, we were forced to dispose of the land to other developers because we did not have the strength to run five or six projects at a time. Likewise, this building [the group’s office] is not going to come down until Crest Jalan Sultan Ismail is 95% completed,” he adds.

“We have a small team, we are not in the red, and that's how we'd like to keep it. So, if we're comfortable we do it, if we're not, we have no qualms about disposing of the asset. We're not a developer that needs landbank and to keep preparing for the next 10 years or so. We would have preferred to keep the Sunrise plot and sell it at RM1,500 to RM2,000 psf but we sold it for RM39 million and reinvested the money in the Crest and moved on,” he says.

Still, SKN believes it will benefit from the confluence of big-name projects in the vicinity and hopes the properties in the area will appreciate in value in tandem.

“That was one of the strategies we thought of — to rebrand the neighbourhood — so we sold the land to Sunrise. We just follow them, so then the unknown becomes a little bit known,” pipes in SKN Land & Development chairman Mohd Rosly Hussein. Sunrise has plans for a strata office development Solaris Towers with a GDV of RM450 million on its site.

Crest-AFB partnership
Last December, Crest Worldwide Resources struck a deal with AFB, one of its end-financiers, to have the foreign Islamic bank promote the Crest Jalan Sultan Ismail’s remaining residential units via its network spanning Asia-Pacific and Europe. Such an arrangement is rare, if not unheard-of.

"It is a very unusual arrangement, but we are very unusual people. We are doing things other people wouldn't do,” says Shamir, adding that the bank considers itself a partner of SKN as it has not only offered to provide the end-financing for the Crest project but also extended a RM20 million facility for its working capital.

A roadshow that will cover Qatar, Jakarta and South Korea is being planned. The bank is eyeing foreign sovereign wealth funds as potential customers. Nonetheless, this partnership with AFB is not an ace up its sleeve for SKN nor is it its fallback plan.

“I was with a bunch of very potential investors in Singapore [last December] who might take up 70% of our commercial tower. They have their own limitations as it’s for self-use. They need maybe 60,000 to 70,000 sq ft.

“They asked whether they could buy part of the building. So, we’re working that out. We’ll wait until AFB does its roadshow in Qatar and so forth… we’ll open it [the commercial tower] up then,” he says.

He adds that the group is cautious and not rushing to sell the units at this juncture.

“We want the overall arrangement with the contractors, financiers and so on to be done right. The pressure on cash flow is not grievous at this time. We had all sorts of buyers who could not service their [residential] units. When they started suffering, we allowed them to repay slowly. Our buyers and creditors are in sync with the understanding that we are not fully financed by institutions.”

Crest Jalan Sultan Ismail is also being promoted in London, the Middle East, Korea, Hong Kong, India and Pakistan by agencies appointed by SKN. Response has been encouraging, according to Shamir.

What's next?
SKN has two projects in the pipeline. One of them is a 29-storey mixed development with a GDV of RM300 million on 1.2ha in Desa Pandan, Kuala Lumpur.

The retail units will be in the two basements and on the ground floor while the rest of the building will comprise offices. The developer is not ruling out adding residential units to the mix.

“We have been offered to participate in joint ventures by a few developers to put in studio and 1-room and 2-room serviced apartments for small families, couples and singles. We might change our minds but for now, our approvals are for  offices and retail,” Shamir says, adding that SKN plans to sell the units at RM550 to RM650 psf.

“We believe Desa Pandan is a very good captive market. There are about 15,000 office people in that sq km radius,” he says.

“It has got beautiful flyovers right to Times Square already and a link is being built between Jelatek and the Keramat expressway. So that would make fantastic traffic flow all the way from Melawati to the city.”
The new project will also purportedly offer a beautiful view of the KLCC area from the seventh floor onwards due to the 5-storey height restriction in the U-Thant area and because the project faces the Selangor golf course.

“It is a good opportunity because the surrounding office buildings are dilapidated. The offices there might want to relocate, but they want to do so conveniently. I see the future KL becoming crammed, and the new project is close to the CBD yet on the fringes. So, you have the line [that straddles the CBD and the suburbs],” Shamir says.

The building is capped at 29 storeys because of its location — it is directly in the flight path of the Sungai Besi airport.

SKN's other planned project, which entails the demolition of its current premises on a 14,000 sq ft site on Jalan Yap Kwan Seng, is a 35-storey niche condominium with a GDV of RM100 million. City Hall has, in principle, given the group the green light to tear down the building.

Privacy is a key feature of this development. The first 10 floors will house only two units each while the floors above will have only one unit each. This freehold project will be fully furnished, although SKN has not determined a price for it yet.

Outlook
The group’s priority is to complete its flagship mixed development by year-end, given its small capacity and pessimism about this year’s outlook. Thus, investors can expect to hear of its project launches somewhere in 3Q2010.

For now, the group is content to focus on “little, niche properties”. “We’re not keen at this time on township development, on 50-acre to 100-acre developments. We’re happy to be in the CBD, high-growth areas, small parcels… it doesn’t matter so long as it has high value,” says Shamir.


This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 794, Feb22 - 28, 2010

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