Cover: Scouting for opportunities

Crest Builder Holdings is humming with activity. Since venturing into property development, the construction group has been building its presence in the Klang Valley. For executive director Eric Yong, the current slowdown is an opportunity for the company to grow its landbank.

In these times of economic uncertainties, many investors are tightening their belts to conserve cash and cut spending while waiting for the financial storm to blow over. However, the current downturn may also provide rich pickings to the more astute and cash-rich developers.

Last month, Crest Builder Holdings Bhd, the developer of 3 Two Square commercial development in Petaling Jaya, entered into a conditional sale and purchase agreement with Saujana Triangle Sdn Bhd, a wholly-owned subsidiary of MK Land Holdings Bhd, to acquire a leasehold 6.33-acre commercial site in Damansara Perdana for about RM37 million.

Contractor-cum-developer Crest Builder intends to submit its plans for the 95-year leasehold site to the authorities by June and targets to commence work early next year.

Crest Builder executive director Eric Yong says like all developers, the company is always on the lookout to add to its landbank, particularly from “cheap sales” in the vicinity of Kuala Lumpur.

“My father’s philosophy is to acquire land at a relatively cheap price so that there will be virtually no holding cost for us. He does not believe in buying land to keep,” says Yong, referring to Crest Builder founder and managing director Yong Soon Chow, who started the company as a construction firm in 1983.

Having built a solid reputation in the construction business for the past 25 years, the company ventured into property development only six years ago — the same time it was listed on the Main Board of Bursa Malaysia. The family holds a 44.3% stake in the group. Today, there are five Yong family members holding various positions in the company. Yong joined Crest Builder in 2003 as a project coordinator to learn the ropes in the various departments. He was eventually appointed executive director in 2008.

While Crest Builder has always kept a low profile, Yong felt its shareholders, potential investors and the general public should know more about the company’s activities. So, he started a blog — www.fromthepenthouse.blogspot.com — at end-2007 when 3 Two Square was completed.

“The blog was supposed to be an online archive on the company, but it became more active after we moved to 3 Two Square. So far, there isn’t any Malaysian blog about the construction/development sector, so I thought this could be it,” he adds.

Yong and his siblings wanted the construction company to be more diversified and be known for its multi-business cores such as property management, asset management and even mechanical and engineering services. “The easiest way to venture up the value chain is to evolve into property development,” says Yong.

To build its presence in the country’s property development sector, Crest Builder had purchased strategically located tracts in Petaling Jaya, Shah Alam and the high-end enclave of Mont’Kiara and has successfully developed or is in the midst of developing the tracts.

The company completed its maiden project — the leasehold RM280 million 3 Two Square in Petaling Jaya’s Section 19 — two years ago. The 5.5-acre commercial project features a 13-storey office tower, 199 office suites and 38 retail lots. The land was acquired for RM32 million in 2003.

In Kelana Jaya, Crest Builder began ground works on the 1.82-acre freehold Tierra Crest office tower. With plans to sell the RM130 million building en bloc, Crest Builder acquired the site for RM7.2 million in 2006.

In Shah Alam’s Batu 3, Crest Builder is currently developing the 36.8-acre freehold Alam Hijau project. It acquired the land for the project for RM22 million in 2005. The project, being implemented over five phases, has a gross development value (GDV) of between RM450 million and RM500 million.

Crest Builder also acquired a 2.93-acre lot in Mont’Kiara for RM6.7 million cash in 2004 and is now waiting for approval to develop a RM220-million condominium project called Kiara Crest, tentatively targeted to get off the ground early next year.

‘Mini’ Metropolitan Square

Sharing the company’s plans with City & Country, Yong is confident that its Damansara Perdana project will bear fruit, given the site’s good potential — easy access by way of LDP (without having to pay toll) and its coveted Petaling Jaya address.

He likens the new development, with a potential GDV of between RM160 million and RM200 million, to a “mini” Metropolitan Square located nearby. The yet-to-be-named two-phased project will comprise mostly serviced apartments and retail lots.

According to Yong, the developer will focus on the retail business and is busy identifying partners, such as hypermarket and supermarket retailers, for the retail lots. “We need to generate interest in our serviced apartments. With a ready catchment area in Damansara Perdana, including the nearby 4,000-unit Flora Damansara apartments, it makes sense to get the retail portion going,” says Yong.

For the serviced apartments, tentative prices range from RM300 to RM350 psf and the developer intends to keep built-ups small. “Our rates are competitive; buyers today are cautious about the amount they have to fork out due to the gloomy economic climate,” says Yong, who graduated with a civil engineering degree from London.

3 Two Square

The 3 Two Square development has a net lettable area of 740,000 sq ft and priced at RM275 psf. Since its launch, secondary values have risen by at least 28%, says Yong.

With only six of 199 office suites unsold, Crest Builder intends to keep them for its own use and has since moved into the office tower, occupying the entire penthouse floor. Occupancy rate for the office tower, with a net lettable area of 140,000 sq ft, is 85%. It boasts tenants such as Friesland Foods, Novartis, Euro RSCG and Celcom.

According to Yong, the office tower commands rents of between RM3.80 and RM4.20 psf (inclusive of maintenance fees). The developer currently enjoys monthly rents of RM500,000. It also manages the car park with 1,300 bays and obtains a monthly recurring income of RM100,000.

For the shopoffices, it is 60% occupied with rents ranging from RM2.50 to RM3 psf. So far, only 15 retailers have started operations on the ground floor, paying rents of RM6 to RM7 psf.

Alam Hijau

Work on the Alam Hijau commercial project began two years ago. Crest Builder plans to hand over the first two phases comprising 1,085 medium and medium low-cost apartments to Syarikat Perumahan Negara Bhd (SPNB) by mid-2010. The apartments were sold to SPNB for RM147 million under the affordable housing scheme (Rumah Mampu Milik).

For the third phase, it has obtained approval to build a block of 300 serviced apartments on a 2.7-acre site. The built-ups range from 800 to 1,200 sq ft. The ground floor has a retail space of 40,000 sq ft.

According to Yong, the developer conducted several surveys late last year on the surrounding population as it was unfamiliar with the area. “Although we found that there is demand for serviced apartments here, we have to be careful with our pricing as buyers today are worried about spending their money,” he adds. To keep them affordable, average units will be under RM200,000 (about RM245 psf).

To increase the marketability of the development, Crest Builder has started talking to investors, such as hypermarket and supermarket retailers, to take up space on its 3.8-acre site for the fourth phase.

The fourth phase will see a 3 to 4-storey retail podium, with an office tower sitting atop. It has a gross floor area of 500 million sq ft. “We are in talks with bowling and indoor futsal operators to set up shop here,” says Yong, adding that its Damansara Perdana development is similar in concept to Alam Hijau. At present, Crest Builder plans to lease out the fourth phase, which has a GDV of RM150 million.

The fifth and last phase is planned for a RM50 million purpose-built office which the developer intends to sell en bloc. Sitting on a 2.02-acre site, it has a gross built-up of 450,000 sq ft and the developer has identified several investors, including services sector players.

However, Yong says market conditions could change its plans for these three phases in Alam Hijau. “While the product mix is there, there is still room for change on matters such pricing and whether to keep or sell the products.”

Kiara Crest

Crest Builder’s upcoming Kiara Crest project in Mont’Kiara is a classic example of a strategy of snapping up land on the cheap and developing it when the time is right. The 2.93-acre plot on Jalan Kiara 5 was purchased in 2004 for only RM6.7 million cash, or RM52 psf. Yong estimates the land’s market value to be about RM30 million today.

The company hopes to get approval for the RM220 million project by mid-2009. If all goes well, construction works for Kiara Crest, the company’s first high-end development, will start early next year.

However, Yong says the company is not in a hurry to launch the project, thanks to the virtually zero-holding cost of the land. The developer is confident that by the time the three-year project is completed, it will be able to capitalise on an economic upswing.

Kiara Crest will be a 38-storey luxury tower housing 178 condominiums, with floor space of between 2,000 and 2,600 sq ft. With only six units per floor on 32 levels, the average unit will have between two and four bedrooms. Each unit will have a minimum of three car parks.

Although the site is just under three acres, the residential building will only sit on one acre, while the rest will be preserved as “forest” greenery, with lots of tropical trees, plants and walkways. Prospective buyers can roam around the “gated jungle without having to fear the unknown”, says Yong.

While the going rate for brand-new condos in Mont’Kiara starts from RM650 and goes up to RM900 psf, Crest Builder plans to price its condos starting from a “modest” RM500 psf.

While other “branded” developers in Mont’Kiara are pricing their new products at RM900 psf, Yong believes such prices are justified. “Take Bukit Kiara Properties and Sunrise Bhd; these developers come with a good track record, historical sales take-up and they spend a lot on marketing,” he adds.

“Kiara Crest’s price can surely sell despite us being a fairly new player in the high-end category. As long as we can achieve comfortable margins, we are happy.”

Kiara Crest is located near Sunway’s Casa Kiara 2 and Asiaquest’s Gateway Kiaramas. It is also a stone’s throw from Garden International School on Jalan Kiara 3.

On the launch date for the project, the developer intends to let market conditions decide. “We may opt for a build-then-sell method. When the market takes a turn for the better by 2012, we may even sell at RM700 psf. So it all boils down to timing and market sentiments,” says Yong.

Banking on construction

In view of the challenging market conditions, Yong says the company plans to scale down its property development activities and concentrate on construction work.

With a current construction order book of RM1.2 billion, Crest Builder has unbilled sales totalling RM900 million, which will keep it busy until mid-2011.

With building material costs dropping, Crest Builder will be aggressively bidding for projects but competition is expected to be keen. “With the price of steel bars now going for RM2,000 per tonne, there will be more players putting in tenders for projects. However, we have built a name for ourselves, particularly in building construction, thanks to my father,” says Yong.

The company won tenders for several construction projects last year, including Verticas Residensi in Bukit Ceylon, Kuala Lumpur; Northshore Gardens condominium in Desa Park City; and The Twins in Damansara Heights. Crest Builder typically targets clients or branded developers with good cash flow and historical results when it comes to take-up rates.

Its previous completed construction projects include The Meritz on Jalan Ampang, Scott Sentral Serviced Suites on Jalan Scott, Brickfields, The Residence in Taman Tun Dr Ismail and Kiara 1888 in Mont’Kiara.

Contribution to profit from the group’s construction division has steadily increased in recent years. Of the group’s profit after tax of RM20.03 million and RM40.19 million in 2006 and 2007 respectively, construction contributed 20%. Last year, based on the group’s unaudited profit totalling RM12.3 million, construction contributed 35%. This year, Crest Builder expects its construction division to contribute up to 75%, with the rest coming from property-related activities.

On its landbank acquisition, Yong says the group hopes to secure another “super profit” project like 3 Two Square, adding that it can afford to purchase land with a maximum price of RM150 million.

“We are eyeing good locations, particularly the Kuala Lumpur City Centre (KLCC) area. We are able to secure bank loans of up to 80%. In the past, we took loans of up to 70%, while some purchases were paid in cash. However, we are exercising extra caution now with the current market situation,” says Yong.

Crest Builder is in the enviable position of being able to fall back on its construction business when the property market experiences turbulence. This, coupled with its relatively stable financial position, will enable Crest Builder to capitalise on buying opportunities during the current downturn.

Yong says the company is confident there will be opportunities for Crest Builder to build up its landbank “in the not too distant future”.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 745, March 9-15, 2009.