Lessons learnt from ex-Turf City revamp
COGENT Holdings deputy chief executive Benson Tan would tell you that the logistics management company stumbled into property management - with no experience whatsoever. It had only built warehouses for its own use previously.
The two Grandstand buildings - the former Turf City - were extras that came with the deal when it bid for a nearby used-car centre with 150 car showrooms that it had hoped would augment its automotive logistics business.
"There was potential to synergise business with more than 3,000 vehicles stored and displayed there, to cross-sell the car dealers our logistics services, such as towing, vehicle storage and transportation, on top of just leasing them retail space," Mr Tan said.
What it did not expect was that the former mall operator, Singapore Agro Agricultural (SAA), whom it had outbid, would complicate the handover. Cogent alleged that SAA left the area in a state of disrepair, carried out unnecessary removal and rectification works - such as removing a metal deck floor - and tried to evict sub-tenants and licensees from the mall. The case is now before the courts.
"The ongoing trial does affect our property-management business and take up unnecessary management time, company resources and costs," he said.
But it has not been all bleak for Cogent. In its fiscal year 2013, revenue from its property-management segment more than doubled to $22.3 million, thanks to more tenancies secured at The Grandstand.
Its logistics segment also indirectly benefited - generating a 7 per cent increase in turnover to $40.6 million - partly because it had converted many tenants at its newly acquired car centre into its vehicle-storage customers. About 35 to 40 per cent of its revenue from The Grandstand reportedly comes from the used-car business.
It was no mean feat to turn a dilapidated building with few tenants into what The Grandstand is today: a sprawling family lifestyle mall with 1 million sq ft of retail shops, dining and service outlets and kids' activities clusters (such as tuition centres), on top of being Singapore's biggest pre-owned car mall.
The facelift cost about $20 million, which included not just beautifying the facade but also engaging engineers to overhaul the old and disused escalators and elevators.
Mr Tan admits $20 million is rather hefty, given that the mall's lease from the Singapore Land Authority is only for three-plus-three years, meaning its lease will end in 2018 at the latest. But he insists the substantial investment was necessary.
"Given the dilapidated state (of the mall) we took over, we had to do something to turn it around. Business would have been much worse had we kept it in its original state."
It was also something the company had to do as "a proper, professional listed company".
"When we undertake a project, we have our reputation to maintain as well," he added.
Yet, Cogent is not passing on its higher capital spending to tenants in the form of higher rents. Rental rates at The Grandstand, which range from $6 to $12 psf, are notably less than at other suburban malls, where rents can go as high as $30 psf. There are also no turnover-based rents.
The mall's competitive rentals are partly due to its relative inaccessibility - a problem that the mall has tried to mitigate by providing shuttle services from various pick-up points. The King Albert Park and Sixth Avenue stations on Downtown Line 2, which will be completed by around mid-2016, may ease the situation.
But Mr Tan believed in building good relationships with his tenants, many of which are start-ups that could easily be crushed under the pressure of high operating costs before they have built up a good customer base.
"I would ensure my tenants' businesses are sustainable and growing before I consider any rental adjustment," he said.
In this manner, he has managed to amass a good mix of popular tenants, such as gourmet burger joint Omakase Burger, several upmarket restaurant brands from TungLok, and PasarBella, a farmers' market which is popular with residents of the affluent Bukit Timah neighbourhood.
However, looking for new tenants was tough, said Mr Tan. "We had a plan, but we learnt very fast that it was going to be very challenging for us because we had no track record. We had to share our plans for this mall with potential tenants who were sceptical about what this place could offer."
His strategy was to pick unique brands, so that patrons would visit The Grandstand for that flagship store or outlet.
Now that Cogent has acquired the expertise to manage properties, it will not be stopping at just one mall but will hunt for suitable "neglected or disused" properties which it can lease at lower prices to turn them around.
"We are interested to grow our property-management business with properties that are not doing very well, a bit rundown, that we can revamp into something that yields more income," Mr Tan said.
THE BUSINESS TIMES