A win-win deal for Prasarana, Crest Builder

KUALA LUMPUR: The redevelopment of the Dang Wangi light rail transit (LRT) station site is expected to have a gross development value (GDV) of RM1.04 billion, with land owner Syarikat Prasarana Negara Bhd (Prasarana) to get a 21.1% share amounting to some RM220 million, said a Crest Builder Holdings Bhd spokesman.

Prasarana entered into a deal  last week with a joint venture between Crest Builder and Detik Utuh Sdn Bhd (Crest Builder-Detik Utuh JV), to turn the 1.1ha (118,483 sq ft) plot into a mixed commercial development comprising a retail mall, upscale premium serviced residential suites, hotel and offices sitting on top of the Dang Wangi LRT station.

Under the deal, Prasarana will contribute the land while Crest Builder-Detik Utuh JV will fork out the funding to develop the project. For Prasarana, the RM220 million it is to receive in return for contributing the land translates into RM1,857 per sq ft, which property market observers said is on the high side.

“It is a good price for the land, especially when the market has softened up a bit,” said a property market observer.

In comparison, in July last year, Nadayu Properties Bhd, formerly Mutiara Goodyear Development Bhd, proposed to acquire 1.4ha in Jalan Sultan Ismail (near Sheraton Imperial Hotel) from UDA Holdings Bhd for RM215.5 million, translating into about RM1,390 per sq ft.

Nadayu had proposed to build a 30-storey service apartment building, an eight-storey podium car park and a three-storey retail shopping complex on the plot, with an estimated GDV of about RM1 billion. However, the deal was subsequently terminated.

Azhar Ghazali, media manager of Prasarana, said the agreement with Crest Builder-Detik Utuh JV “was a fair and reasonable deal compared to the other deals Prasarana was offered, and was the best so far”. “We are quite happy,” he added.

It is learnt that the project will create over one million sq ft in gross floor area. The building will be at least 40 storeys high. Some levels will be double volume to allow for the duplex small office flexible office (SoFo) units, according to Crest Builder executive director Eric Yong Shang Ming in a post on his blog.

Prasarana’s Azhar said the Dang Wangi LRT station site has a plot ratio of 1:9 based on the approvals obtained 10 years ago from Dewan Bandaraya Kuala Lumpur (DBKL). That was when the land was under the responsibility of Projek Usahasama Transit Ringan Automatik Sdn Bhd (Putra), which is now under the purview of Prasarana.

However, since it was 10 years ago, Azhar stressed that the land will still be subject to approvals from DBKL to maintain or revise the 1:9 plot ratio.

Nonetheless, he expects construction to start in 2013 at the earliest, subject to approvals from the authorities.

Should this venture prove to be a success, Prasarana may be following in the footsteps of the Hong Kong MTR Corp (HK MTR Corp), which successfully adopted a rail-plus-property business model.

It is to be expected that proceeds from the redevelopment of the Dang Wangi LRT station or other sites owned by Prasarana could be channelled to partially finance future LRT extensions or upgrades.

Such a business model was developed as a means to partially recoup the vast sums to be spent on further developing the LRT system or even the mass rapid transit (MRT).

Note that the HK MTR Corp revenues are currently based on 35% fare box revenues, with the remainder derived from property development. In Hong Kong, this approach also serves as a planning tool for urban spatial development by establishing new communities along the routes of its railway lines.

However, it may be difficult to exactly replicate the Hong Kong model here as the HK MTR Corp has access to several tracts of land, mainly from reclamation, that allow for an integrated station and property or residential development in a country where land is scarce. At the same time, the high density in Hong Kong allows maximum optimisation of returns from such property developments, said market observers.

“Nevertheless, it is still a win-win deal for Prasarana to unlock the value from its current assets. Deals such as the Dang Wangi station should be encouranged,” said an analyst. For Crest Builder, which has a market capitalisation of RM98.03 million, the project will mark a milestone as not only is it the group’s first development in the heart of Kuala Lumpur but one with a GDV of over RM1 billion.

Such deals also bring advantages to the small-cap developer as it is not bogged down by huge land cost or capital cost upfront for developing the project, as it will pay Prasarana as per the stages of the development, said an analyst.

Crest Builder whose core expertise is in construction, has diversified into property development and management as well as mechanical and electrical services. It is the developer of 3 Two Square in Petaling Jaya, Tierra Crest in Kelana Jaya and Alam Prima and Alam Idaman in Shah Alam.