Blackstone has divested its stake in an upscale apartment complex located in Sentosa Cove, Singapore, to BlackRock. This sale is being described as a “stressed sale” of the financial rights associated with the project.
Back in 2014, Blackstone made an investment of S$367 million linked to Sentosa’s Quayside Collection. This strategic move allowed Blackstone to retain the rights to cashflows generated from the residential portion of the project for nearly a decade. However, over the years, the property market in the area faced challenges, resulting in a decline of approximately 41% in unit prices since their peak.
Market analysts estimate that Blackstone initially acquired its economic interest in the apartments at The Residences at W Sentosa at average of S$2,400 per square foot. Contrastingly, current pricing for units in this high-end residential compound averages at approximately S$1,747 per square foot. This significant difference has posed limitations on financing options for the asset.
BlackRock reportedly acquired Blackstone’s rights under the profit participation scheme in a deal that concluded in October, paying an estimated S$1,200 to S$1,300 per square foot. It’s worth noting that Blackstone’s funds typically have eight-year durations, with the option to extend for another two years. The vehicle associated with the CDL scheme had completed its fund raising back in 2012.
The profit participation scheme had originally been introduced by CDL nine years ago, offering investors a means to tap into cashflows generated by the Quayside Collection’s W Singapore, Quayside Isle shopping center, and the condominium component. Notably, CDL had sold around 25 condos in the development before opting for monetization through the profit participation scheme.
In addition to Blackstone’s commitment, Malaysia’s CIMB Bank and CDL contributed S$102 million and S$281 million, respectively, as part of the club deal. Furthermore, an additional S$750 million in senior loan facilities came from DBS Bank and Oversea-Chinese Banking Corp.
As per the terms of the scheme, CDL ensured fixed payouts of 5% for the first five years, with the three firms eligible to share in proceeds from property sales after the initial five years. CDL, however, retained ownership of the assets.
Although CDL repurchased the financial instruments linked to the hotel and retail components in a S$393 million deal in 2019, The Residences at W Sentosa have remained under the control of the Profit Participation Scheme, as property prices have not met expectations.
CDL subsequently introduced at least two more profit participation schemes, including a S$1.1 billion program backed by a trio of office assets in 2015 and a S$978 million arrangement connected to Nouvel 18 condo on Anderson Road in 2016.
With CDL bound by the scheme’s terms, preventing them from selling the portfolio’s approximately 203 apartments for less than S$2,400 per square foot, the assets have stayed within the scheme. Property prices for these luxury homes have, on average, remained 27% below that figure, based on data from PropertyGuru and EdgeProp.
Several factors have contributed to the challenges faced by this property, including its location on Sentosa Island, its 99-year leasehold status (with roughly 80 years remaining), and the spaciousness of its units, which range from 1,238 to nearly 7,000 square feet. Rent prices in the complex vary from S$4.49 to S$6.97 per square foot per month, according to agency data.
Considering the decrease in the property’s value, senior lenders would require a top-up of the loan-to-value ratio at specific milestones in any financing arrangement or in the event of refinancing. Additionally, the profit participation scheme ranks below senior instruments in terms of repayment, as indicated by industry sources.
Given these challenges, coupled with the maturity of Blackstone’s vehicle that originally supported the scheme, the investment manager faced limited options for divesting its interest in the residential project.
As of now, Blackstone representatives have refrained from commenting on the transaction, while BlackRock has yet to respond to inquiries at the time of this publication.
Since the conclusion of fundraising for its first Tactical Opportunities Fund in 2012, Blackstone has introduced four strategies in the series, including the Blackstone Tactical Opportunities Fund IV, which raised $5.2 billion in equity in August of the previous year.
