Baker Program Singapore Trek Day 3: CapitaLand, GIC, URA, and CBRE

Halfway through the international trek for 2019-20, the Baker students continued exploring the real estate markets of Singapore and Asia-Pacific.  Beginning the day with CapitaLand, one of Asia’s largest real estate investment management businesses, the group met with Benjamin Ng and other representatives from its Corporate and Strategic Planning team.  CapitaLand’s real estate portfolio is well-diversified, spanning nearly all asset classes including commercial, retail, office, industrial, logistics, integrated development, urban development, lodging, and residential.  With a presence across more than 200 cities in over 30 countries, the company focuses on Singapore and China as its core markets, though it continues to expand into emerging markets such as India, Vietnam, Australia, Europe, and the USA.

Exploring Lyf at Funan Mall
Exploring Lyf at Funan Mall

CapitaLand is considered a REIT pioneer in Singapore, having listed CapitaLand Mall Trust in 2002.  Over time, CapitaLand’s REITs and business trusts have expanded to include Ascendas Real Estate Investment Trust, CapitaLand Commercial Trust, Ascott Residence Trust, CapitaLand Retail China Trust, Ascendas India Trust, and CapitaLand Malaysia Mall Trust.  Among these diversified holdings, retail in Singapore still holds a dominant place in the portfolio.  In a market that has per capita retail offerings significantly lower than developed markets like the U.S., Canada, Australia, and Hong Kong, CapitaLand boasted AUM of S$19.7 billion in 2019, with a 99% occupancy rate and average tenant sales of over S$94 per square foot.  Engaging 448.9 million shoppers every year with over 3,000 tenants, the portfolio has Revenue Under Management of S$1.31 Billion.

The team presented various success stories including Plaza Singapura, The Atrium at Orchard, and Bugis+.  However, the focus of the visit was the Funan Mall where the Baker students were hosted.  This is an example true to CapitaLand’s vision of enriching people and communities through high-quality products and services.  Unlike most other malls in Singapore that are built on or around transit stations on the principles of Transit Oriented Development, the Funan Mall is relatively distant from transit connectivity.  To make up for this and to attract visitors, the mall has been positioned as a destination in and of itself with retail, two office towers, and a serviced apartment tower.  In addition to its mixed-use offering, the mall houses an edible rooftop garden and Lyf, a co-living space created to help residents forge connections with the thinkers of tomorrow.  Lyf is targeted towards young urban professionals and the transient workforce that is price sensitive and also interested in a communal lifestyle that extends to shared rooms, workspaces, and recreation, with avant-garde interiors to match.

The next stop on the itinerary was GIC, formerly known as the Government of Singapore Investment Corporation.  GIC is the sovereign wealth fund of Singapore and invests the over S$100 billion foreign reserves of Singapore with a long-term focus.  The fund is mandated to not invest domestically and is thus diversified across global assets.  The group was hosted by Richard Massey and Han Hwee Chin, both Senior Vice Presidents who presented GICs vision for investment and the role of real estate in the portfolio.  The real estate portfolio is diversified across asset classes and geographies, skewing towards office (34%) and retail (19%).  GIC believes in investing across four quadrants: private real estate, private real estate debt, public real estate debt, and listed real estate equity.

Bakers at GIC

Given its global holdings, GIC is extremely cognizant about macroeconomic risks and keep tabs on capital allocation by comparing merits across markets and hedging foreign exchange exposure.  In seeking the best risk-adjusted returns across the globe, each investment is scored against a specific risk-adjusted hurdle rate based on the country hurdle rate with added premiums for the market and other risks.  Risk factors such as returns, quality, construction, management, and leverage are scored against this investment hurdle rate before investing, and these factors are updated at regular intervals.

A target market allocation of 4-5 countries has the most diversification benefit, beyond which a new market is determined by a resource allocation and resource optimization exercise.  Core markets with >5% of the real estate portfolio include the U.S., UK, Germany, Japan, China, and Australia, while opportunistic markets that contribute meaningful alpha commensurate with the resources utilized are India, Indonesia, and Vietnam.  In managing the portfolio, GIC uses global insights that include conventional databases, internal data, and alternative data sources such as geo-location, online review and ratings, social media sentiments, consumer credit, and other metrics.  The presentation concluded with an investment thesis on the future of student housing with its defensive demand characteristics, positive market fundamentals, attractive financing spreads, and currently abundant acquisition opportunities.

Visiting the URA, Singapore

Remaining under the aegis of the Government of Singapore, the next stop on the itinerary was the Urban Redevelopment Authority (URA), the planning agency tasked with making Singapore a great city to live, work, and play.  Baker students were hosted by fellow Cornellian Daveen Koh and a colleague who together walked the group through the two-tier strategic planning approach of developing Concept Plans and Master Plans to guide the physical development of Singapore in a sustainable manner.  The Concept Plans are designed for a long-term horizon and allow for flexibility in planning while envisioning mega-projects and infrastructure, while Master Plans are designed for short-term statutory plans of 5-years that are extremely detailed in terms of land use, form, and other requirements while at the same time considering local development needs.  The dual nature of this planning allows the private sector to confidently develop specific goals and outcomes while allowing the government to modulate the plans based on the changing requirements of the city-state.

In addition, these plans do not adopt a top-down methodology but instead adopt a participatory planning approach allowing the government to achieve the vision of all citizens.  Uniquely, the participation comes not only from common citizens but also from the industry, a process which allows changes to be made and facilitates ease and flexibility of the system with increased convenience and efficiency.  Unlike other planning agencies, the URA is tasked with the sale and leasing of state land to attract and channel private capital investment into development sites supporting economic and social objectives.  The students were exposed to the end-to-end processes of planning the current and future of Singapore, including the successful use of policies and taxes to control land prices in the city, thereby avoiding the typical boom and bust cycles of real estate markets.

Understanding Workplace Solutions with CBRE

The last stop of the day was at the Asia-Pacific headquarters of CBRE, specifically the Global Workplace Solutions division, which strives to improve the experience of work and help organizations leverage their real estate investments to drive business change.  Hosted by Peter Andrew, Executive Director of the Workplace Centre of Excellence, the group was exposed to the thought process behind Workplace Strategy, Experience Consulting, Change Management, and Occupancy Management that helps clients identify opportunities to reduce and/or reallocate costs, more effectively manage resources, improve employee engagement, and make decisions faster.  The local office was a shining example of the possibilities of leveraging design and technology to deliver an effective work environment that creates an emotional connection between employees and organizations, in turn creating a destination that supports the physical, cognitive, and social needs of the individual.

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