The headquarters of Bandar Raya Developments Bhd (BRDB) in Bangsar can easily pass for an art gallery. A slatted wooden divider unfurls sinuously across the office, whose walls are also covered with wooden panels that cleverly hide built-in cabinets.
The walls and divider are adorned by large canvases on loan from the Aliya and Farouk Khan Collection, the nation’s largest collection of contemporary art. Last year, the group had sponsored The Aliya and Farouk Khan Collection Book, a staggering 10kg tome featuring 80 artists in its 932 pages.
The artworks also feature prominently inside the office of CEO Datuk Jagan Sabapathy. A stack of photographs of Morocco lie near his desk, his favourite being a stunning black and white rendering of a library in Casablanca as well as a colourful reproduction of the city’s rooftop tanneries.
This melding of form and function with a touch of “la dolce vita” — Italian for the good life — is at the heart of BRDB’s approach to real estate. The developer has consistently featured among the Top 10 in The Edge Top Property Developers Awards since its inception in 2003.
It was recently in the limelight for the proposed sale of its investment assets, namely Bangsar Shopping Centre (BSC), the adjacent Menara BRDB, CapSquare Retail Centre in Kuala Lumpur and Permas Jusco Mall in Johor.
While BRDB had earlier accepted an offer from major stakeholder Ambang Sehati Sdn Bhd for the latter to acquire the properties in a RM914 million deal, the former, in a surprise move, decided to call for an open tender for its assets after both parties agreed to cease negotiations. Ambang Sehati will also be invited to bid for these properties. The tender will be managed by an independent property valuer appointed by BRDB and further details of the tender are expected to be announced in due course.
“The board’s intention has always been to enter into transactions that would ultimately improve our shareholders’ value. We have always been fully aware that since this is a related party transaction involving a major shareholder of the company, it would attract greater interest and scrutiny from the public and have taken great care to ensure the offer was properly evaluated and analysed to ensure the best possible terms for the company and our shareholders,” said Jagan.
Regardless of the nature of the transaction, the proceeds from the sale will enable BRDB to step up its game — expect a steadier stream of launches in the future, Jagan tells The Edge.
The Edge: What are BRDB’s strengths? How do you sustain interest in your products? How do they stand out?
Datuk Jagan Sabapathy: As a developer, what do you do? [In the residential sector], everybody does the same thing, whether it is low-end, mid-scale, upscale or condominiums. And there is a structural element to both retail and office buildings.
But at the end of the day, our primary objective is we try to compete on ideas — we think about the market, about how we can deliver something special that will meet requirements.
And over the years, I think we have done that. If you look at Bangsar Hill — which I think started out as one of the best gated and guarded developments — it is still doing exceptionally well.
We did One Menerung, a suburban development that achieved almost RM1 billion worth of sales, and The Troika, where the prices were great and we won a lot of architectural awards.
At every level, we try to raise the bar. That is good but it is also extremely challenging. When we come up with something new, we are expected to think hard. We gain inspiration from things that we have seen as well, but we have to do a lot of market research and think.
We talk about intelligent design. It involves substance, which means we look at layout, functionality and the little details like storage and light.
Then, there is what I call the aesthetic or “wow” factor. A lot of our projects have the wow factor.
There’s The Troika near KLCC, but [also look at] BSC! When you sit outside BSC, you go ‘it’s a lovely place to be!’ [thanks to] clever designs, landscaping and use of materials.
The third part which I think keeps us relevant is our belief that whatever we deliver is to enhance people’s lives. Whether it is a home or an office or a retail centre, [property is] part of your life.
And so, in many ways, I think that we provide people in various categories with what the Italians call la dolce vita — the good life. And I think we all aspire to it — doesn’t matter what market segment you are.
When you look at BRDB, what’s the difference? It’s that [the good life]. Come to BSC — the cafés, the restaurants — it’s a lifestyle. It’s a badly used word [lifestyle], but what a lovely way to indulge yourself.
I’d like to think that if you [explore] our offices, it says a little bit about us, and we’d like to think that we explore the good life.
How would BRDB improve as a developer?
Where I think we have not been as good as I would like us to be is to have a continuous pipeline of projects. Some developers have been constantly churning out products, but we have been a little more sporadic in putting them out. Partly because of the comfort of having BSC and our other investment properties, everybody went, ‘Yeah, on the basis of that, everything looks good’, everybody is happy.
Now, those days have come to an end. We now need to be able to ensure that we have a steady pipeline of projects over a certain period of time, and we’re going to have to be a lot more disciplined and focused in keeping the pipeline going. And our ability to do that has been somewhat enhanced because we have been able to, in the last 12 to 18 months, have a better balance of land to work with.
In the past, we were very much at the top end, [but] we now have a balance of top-end and mid-end projects.
So while the top-end [market] will be a little more difficult, I believe the middle-end will see more continuous demand.
What are BRDB’s sales targets for 2011 and is it on track to meet them?
Naturally, our targets are always to sell out all our projects and in the light of the response we have had this year, we are doing very well. Interest and take-up rates have been very encouraging and I believe we are certainly on track to meet our targets.
In the Klang Valley, the first phase of Verdana was recently launched. This residential development, comprising two condominium towers in north Kiara, has enjoyed extremely encouraging response with sales surpassing 70% within a month of launch.
The second phase will be launched in 2012 and the two phases are on 11.5 acres of land with a combined GDV of about RM1 billion.
In Permas Jaya Johor, we launched Phases 1, 2 and 3 of Straits View Residences which have achieved sales of 90% to date.
This landed, gated and guarded development comprises six phases which will be launched progressively from 2011 to 2013.
Elita, the final block of The Straits Condominium, was also launched in the middle of this year and has seen a 60% take-up rate.
These launches allowed us to bring more of the BRDB brand and its creative, innovative approach to Johor Baru, paving the way for future developments down south.
Any significant projects we can look forward to?
Moving forward, BRDB has residential property developments worth roughly RM6 billion in recognisable GDV over the next three to five years.
BluWater, a gated and guarded landed community development across from The Mines, will be launched in four phases through 2011 and 2013. Spread over 48 acres of waterside land, this development has a GDV of about RM700 million.
Also set to be launched late at the end of 2011 is our masterpiece residential development in Medang Serai, Bangsar. Set on six acres of prime land in Bukit Bandaraya, this development is limited to 121 units and will set new standards in luxurious living and exclusivity and will net BRDB about RM876 million in GDV.
Another premier project to look out for are our luxury residences in Taman Duta, which is due for launch in late 2012 with a projected GDV of over RM900 million.
We have also entered into a joint venture (JV) with Multi-Purpose Holdings Bhd to develop land in Penang, Mimaland and Rawang. The Penang JV comprises 80.9 acres of freehold land to be developed in the southeast of Penang near the airport with a projected GDV of RM600 million. In Mimaland, 324 acres of land are to be developed into an environmentally friendly community set among natural water features with a projected GDV of RM2.2 billion. In Rawang, 265 acres of land with a GDV of RM1.4 billion are going to be developed into landed residential homes and a commercial village. These three joint ventures will be launched at the end of 2012.
BRDB’s mixed-use development on 25.5 acres in Subang will comprise commercial, retail and residential components. It is scheduled for launch in 2012 with a projected GDV of about RM2 billion. In Johor, our thriving township of Permas Jaya will be hosting a number of launches. The third through sixth phases of The Straits View Residences, with a GDV of RM188 million, are being launched from 2011 to 2013. Elita, the final phase of The Straits View Condominium, was recently launched with a GDV of RM89 million and the launch of 3-storey shopoffices with a GDV of RM61 million is planned for later this year.
In November 2010, BRDB entered into an agreement with UEM Land Bhd, the master developer of Nusajaya, Johor, to jointly develop Puteri Harbour in Nusajaya as a prime waterfront destination for the region. To be developed in six phases over seven years, the 111-acre development is expected to have a GDV of about RM2.3 billion with Phase One scheduled to commence in 2012.
What are some of the trends in real estate development that you have noticed? How is BRDB addressing these trends or consumer demands?
BRDB is working the mid-end. Just like BMW was happy to run the 7 Series, I think we need a decent number of 5 Series and 3 Series [models]. We are very much like BMW.
We want to sit down and tell the market that we are capable, not just guys who operate at the very top. We can give you that same ethos at a mid-market price too.
What does BRDB plan to do with the proceeds from the disposal of assets?
With the funds from the divestment of its property investment assets, BRDB will settle its debts, pay a special dividend to its shareholders and use the remaining as working capital to fund the acquisition of new landbank and our upcoming developments.
There are concerns about a loss of recurring income following the divestment of the group’s investment properties. Any comments?
Despite accounting for almost 30% of our property segment’s total assets, property investment has contributed less than an average of 5% to our property segment’s total revenue and profit after tax over the past three years.
The divestment presents an excellent opportunity for BRDB to unlock the value of its investments, reward its shareholders and pare down its current borrowings by up to 60%, improving its debt coverage ratio and placing it in a better position to take on further leverage for future property developments.
It also enables the group to rationalise and streamline its resources to focus on its more profitable property development business. The divestment of these mature assets will place BRDB in good stead to recycle its capital as well as take on further leverage for new projects and to increase its landbank.
While we may lose some revenue and profits from the property investment division, plans are already underway to mitigate any losses through its upcoming projects.
Moving forward, BRDB has residential property developments worth about RM6 billion in recognisable GDV over the next three to five years. Given the planned projects and its recent acquisitions of land and joint ventures, there is a great amount of positive activity to drive the brand.
What are some of the challenges the real estate industry is facing?
Over the years, we have learnt that expectations increase. As people travel more and see more, people have developed expectations and want to experience this in their own lives. This is where the real challenge for developers is and we keep pushing the standards.
There was a time when you could take stock-standard solutions and roll them out. You cookie-cut, it works, you carry on. Today, I don’t think you can do that anymore.
If you look at the top developers, in the past five years, they have raised the bar. And I think this is part of what the market requires but it is also partly due the developers’ effort to move things forward. So I think all round, Malaysian developers are doing a fantastic job competing on ideas. I think we are doing a fantastic job.
There is also the issue of skilled labour — when we train labourers to deliver products our consumers expect, they end up leaving for better-paying jobs abroad. This is something we will have to solve.
What is the outlook for real estate considering both the global and local economic situations?
We have seen uncertainties in the market over the years. We had Lehman Brothers in 2008 and 2009. Not long after that, everything settled down and life went on. We are seeing Europe and America going through a phase [that is] maybe hugely self-inflicted.
But it is an adjusting phase and at some point there will be a solution to Greece, as there will be a solution to Europe. Markets will calm down. The US will have to adjust its debt level and it will find a way through it.
It may muddle through. You read a lot of the financial press and the prognosis is probably stagflation — low growth, inflation — in North America. But the rest of the world is happily carrying on.
I feel Asia is still in a good position. It is the growth story of the 21st century. I think Malaysia is well poised, and in the short term we are going to see money through the system. [It takes time but] the multipliers [from the large infrastructure projects under the Economic Transformation Programme] will be in effect. If you look at what happened in the Asian financial crisis, we had Putrajaya and [other projects] that kept us more than afloat.
You are going to see wages rise because it is part of government policy. So that means middle-class Malaysia [professionals] will get paid better and have money to buy homes — better homes.
Well, my gut feeling is that while there may be some, what I call, temporary caution, if a good product comes up in a good location and is fairly priced, it will find a market.
This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 878, Oct 3-9, 2011
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