The value of 8M Real Estate’s portfolio of shophouses increases six years from $400 million to $1.4 billion

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Pinetree Hill showflat location

It’s been nine months from the day Ashish Manchharam, founder and CEO of 8M Real Estate (8M) has stepped into the shophouse market in conservation by making his first purchase of of five shophouses from 112 to Amoy Street. The purchase price was $50 million. the shophouses located in the CBD in the year the year 2014. Based on the gross floor area (GFA) 27500 sq ft spread across five shophouses $50 million price of the purchase equates into $1,818 per sq ft.

Pinetree Hill showflat location is near plenty of basic amenities. Schools, hospitals, restaurants, and entertainment joints are conveniently positioned close by.

The five shops on Amoy Street are valued at more than $110 million, or $4,000 per square foot. “When we first began acquiring shophouses in 2014 and 2015, none of the properties were worth more than 100 million dollars,” said Manchharam. “Today we’re probably in possession of just a few properties that are worth more than the $100 million mark.”

The shophouses located on Amoy Street, owned by 8M and 8M, are leasehold, with 99-year leases beginning in 1990. The prices of freehold and leasehold shophouses located in Chinatown, the CBD along with Chinatown in the prime districts 1 and 2 has gone up even more.

The year was 2022. the shophouse located at 95 Amoy Street changed hands for $18.688 million, or $6,028 per square foot in accordance with the GFA that was estimated to be 3,100 square feet, as well as a 999-year leasehold site of 1,856 square feet. Then, five months later in the beginning of April, a caveat was negotiated in the shophouse, for $21.8 million, or $7,032 per square foot. It was purchased by NC Properties, an entity that is part of Hong Hong Kong’s New Century Group. NC Properties is said to have other shophouses that are conservation situated in Telok Ayer and Circular Road, as well.

“The deal of Amoy Street has set a new benchmark for the cost of leasehold and freehold shophouses within Chinatown and the CBD and Chinatown district that is District 1 and 2” states Richard Tan, senior group district director of PropNex Shophouse Elites and a specialist in the conservation of shophouses.

8M has been an important benefit of the rise in the cost of shophouses in conservation. In 2017 the real estate firm’s portfolio of nine shophouse investment properties with a the total of thirty shop lot was valued at $400 million. Six years later 8M has built up 30 shophouses across 72 shop lots which is worth around $1.4 billion at present.

‘Long-term investor’
“We have a goal of being a long-term investment,” says Manchharam. “8M is an unlisted property firm that aims to own properties for a lengthy period.” It is self-funded and supported by his own institutional investors and from abroad. “We have not had to conduct any outside fundraising,” he adds. “Unlike the case with a property fund, we’re not obligated to close after a set period of time or if we decide to consider an property not essential in our fund.”

Many had anticipated a surge of foreign buyers to the conservation shophouse market particularly in light of the property cooling measures that went in force on the 27th of April. As per property agents there is an demand for conservation shops from a variety of foreign buyers who hail from China, Hong Kong, Taiwan, India and Indonesia.

But local investors remain active, according to PropNex’s Tan. “Prices are a lot higher today. Local buyers cannot easily accept these price increases.” The interest rates are also increasing, according to Tan and that means higher cost of borrowing. Today, transactions can be controlled in the direction of “all-cash customers or people with only a small amount of leverage”.

One of these buyers one of these buyers is 8M who purchased the four-storey conservation shophouse on 28 Stanley Street for $29 million in the middle of April in a deal that was facilitated by JLL. The property is located on the freehold site that covers 1,729 square feet with a total floor space of 6,485 square feet. It was purchased in vacant possession. The property’s value is $4,472 per square foot.

“It’s not inexpensive,” says Manchharam, “but considering the current market prices it was reasonable.” Manchharam plans to purchase the shop through an all-cash purchase. “No need to purchase an empty property with no income or earning and also paying high interest costs. We are hoping that interest rates decrease, so we can refinance.”

Based on current market rents the rental yield is forecast at 2% and borrowing costs are 5% as per Manchharam. This could be the reason for more cautious outlook as well as the reported 46% year-on-year decrease in transactions, from 52 shophouse transactions from 1Q2022 to 1Q2023, as reported by PropNex in its 1Q2023 report on shophouses, which was released in April. The value of deals in 1Q2023 was $278 million, which is an 11.7% drop from the prior quarter, and an 40.6% y-o-y drop compared to 467 million for 1Q2022.

The patience to buy real estate
In spite of the current economic conditions, 8M will stick to the long-term strategy. “You must be patient when purchasing real property,” says Manchharam, who adds that the acquisition for 28 Stanley Street was not opportunistic. Manchharam had been following the shophouse located at 28 Stanley Street for five years in the hope that the owner would decide to decide whether or not to sell. The property finally came on the market in January of this year. “The owner was a person who owned the assets for a lengthy period of.”

8M is planning to remodel the shophouse on 28 Stanley Street. The two floors that are on the ground are permitted for use as restaurants and comprise a floor space of around 3000 sq feet. “It’s difficult to find this type of space in the neighborhood,” says Manchharam. “We have a couple of F&B operators who have signed up to lease these spaces.” These two floors above are leased out for office space.

He believes there are “some potential synergies” in Solitaire on Cecil the new freehold, 20-storey Grade-A office building across the street across Cecil Street with strata-titled floors available for sale. The development is a renovation of the previously-owned PIL Building by TE Capital Partners and LaSalle Investment Management. In the latter part of April, the three top floors, spanning levels 17 through 20 were sold at $162.8 million, or an average of $4300 psf over the total strata area of 37.857 sq feet. The highest level (20th) reached a record highest price of $4,325 per square foot. Savills Singapore brokered the deal.

Nearby 8M has Ten Stanley Street, which it purchased in June 2016 for $9.2 million. It’s now an office that is serviced.

A different property that Manchharam had been looking at since “a lengthy period of time” was the five shophouses in the vicinity of between 109 and 117 Jalan Besar. In September of last year, 8M scooped up the five shophouses worth $40 million, in a deal that was negotiated by Simon Monteiro, associate vice president of List Sotheby’s International Realty. The five shops are situated on a 6,584 square foot site with a lease of 999 years that dates back to 1926.

The selling company of the company was TSG Group, founded as Teo Siok Guan Pte Ltd in the year 1950. Teo Siok Guan had previously been the owner of Guan Hoe, the distributor for Suzuki motorcycles in Malaysia and Singapore during the 1960s. In the course of more than fifty years, TSG accumulated an extensive real estate portfolio. In 2017 TSG Group offered its portfolios of shophouses in Tembeling Road and Joo Chiat Place to be sold. The shophouses located in Jalan Besar were the last to be offered for auction. “But we were aware of the possibility because we’ve been looking at it for 5 years,”” manchharam says. The property never went on the market because 8M bought the property before it was put up for sale.

Amassing portfolios
In the latter half of 2022 8M Real Estate scooped four more shophouses located at 25, 27 29, as well as 31 Tanjong Pagar Road for 75 million. The buyers were two entities, Silkroad Property Partners and Clifton Partners, who owned two shophouses. 8M’s purchase price was $3700 to $3,800 per square foot based on the GFA for the four shophouses, which had 99-year leases that began in 1994.

“The value of 99-year leasehold shophouses within Tanjong Pagar are now in the high $3,000s. Tanjong Pagar area are now at the upper end of $3,000 to $4,000 per sq ft,” Manchharam adds. The purchase of four shophouses on 25-31 Tanjong Pagar Road gave 8M Real Estate ownership of the entire row of shophouses that are bookended with 15 Tanjong Pagar Road and 43 Tanjong Pagar Road.

He acquired the shophouses located on Tanjong Pagar Road in three block purchases spread over five years. 8M completed the first major purchase of five adjoining shophouses located at 15, 17 19, 21 as well as 23 Tanjong Pagar Road for $57.4 million in March 2018. Based on a GFA of 26,500 square feet which works out to $2,166 per square foot.

The five shophouses located at between 15 and 23 Tanjong Pagar Road were purchased from property investor Stanley Quek as part of a group of seven shophouses at $81.4 million in the year 2018. The other shophouses were located at 18, Gemmill Lane ($11 million) and 71 Neil Road ($13 million).

8M made a third bulk acquisition of shophouses on 33 35, 37, 39 43 and 41 Tanjong Pagar Road for $80 million in February of 2019 in accordance with an agreement to caveat. The buyer of the shophouses was Arcc Holdings CEO Tony Chen who is a long-term buyer of conservancy shophouses. “We had a swap agreement which involved buying 33-43 Tanjong Pagar Road from him and then we traded to him the 70 Neil Road, next to the property which he already owns” Manchharam says.

With the four shophouses located in central part of row on 25-31 Tanjong Pagar Road purchased late in the year, the whole row is now the GFA of 80,000 square feet and 50,500 sq ft is office space and 30,000 sq feet of retail space. The value is estimated to be $350 million. This makes it “by by far, our most valuable asset at the moment” Manchharam believes. Manchharam.

The portfolio consisted of five 999-year leasehold shops at Boat Quay and Circular Road for $45.5 million, or $3150 per square foot Based on an area of 14,445 square feet. The shophouses are comprised of a land totaling 6,002 sq. ft. over 60 Boat Quay, 77 Boat Quay 17, Circular Road, 45 and Circular Road.

The only commercial structure within the portfolio was the five-storey freehold property located at 23 New Bridge Road, which is situated next to four 99-year leasehold shophouses in conservation at 27 29, 31, as well as 33 New Bridge Road. 8M’s price to purchase the properties located on New Bridge Road was $37 million.

Repositioning assets, selling non-core assets, and selling
However, 8M has sold three of the shophouses that comprise the portfolio. The first was the shophouse 61 Boat Quay for $11.2 million in June 2021. It was then 17 Circular Road for $10.7 million in the month of October 2021, and 777 Boat Quay for $16.188 million at the time of 1Q2022. The three shophouses were separate parts and, as such “non-core assets” Manchharam says.

8M has retained the adjacent units at 45 and 46 Circular Road as well as the corner block that runs from 27-33 New Bridge Road. The quartet of shophouses on New Bridge Road will likely be valued at more than 100 million dollars.

A rear extension is now added to the four shophouses on 27-33 New Bridge Road as part of the conversion to the boutique hotel that will have 48 rooms. The design was created by the renowned architectural firm Woha it will include an outdoor pool on the roof and a garden that has been landscaped on the third floor with two dining options on the second level. Manchharam keeps the property hidden for now and is planning to unveil it in the coming months. “It could be considered one of the most iconic structures, similar to that of the Eu Yan Sang Building on South Bridge Road,” Manchharam says. Manchharam.

8M bought 8M purchased the Eu Yan Sang Building across four shophouses that are conservation in the areas of 265 2, 267, 269 as well as 271 South Bridge Road in December of 2019. It was the seller, Eu Realty, who sold the property under a lease of 199 years which is despite the fact that the property is a 999-year lease.

After a complete renovation of the property the co-working operator The Great Room has leased the Eu Yan Sang Building for 10 years. The co-working facility opened in April, with a total of 22,000 square feet spread across four floors. As per Manchharam, 8M signed a 10-year contract together with The Great Room.

Apart from the hotel with 48 rooms that is planned located at New Bridge Road, 8M also has three other hospitality-related properties: Ann Siang House located on Ann Siang Hill, Kesa House located on Keong Saik Road as well as Wanderlust located on Dickson Road in Little India. A global serviced apartments operator Oakwood Worldwide has managed these assets under The Unlimited Collection since the beginning of 2019.

The acquisition took place in July of 2022. CapitaLand Investment acquired Oakwood from Mapletree Investments for an undisclosed amount. Acquiring Oakwood will bring the management of 8M’s Unlimited Collection into CapitaLand’s lodging business division, Ascott.

8M also has shophouses on Hongkong Street and Gemmill Lane, managed through Cove as co-living homes. 8M also owns 70-72 Boat Quay, three adjoining three-storey shops that were that were purchased for $23 million May 2017. The shophouses cover an area of 8,600 square feet in the top floors. They were recently let to a hostel operator Manchharam. Manchharam.

The co-living, hospitality, and serviced apartments sector contribute to only 20% of 8M’s total revenue according to Manchharam. Around 40% of the revenue comes from office space, with an additional 40% comes from retail and F&B% of it comes from retail, and F&B. “Our portfolio is primarily retail and office,” he adds.