CapitaLand enters JV to redevelop Market Street Car Park

The total project development cost is estimated to be more than S$1b.

Under the joint venture agreement, CapitaLand, CapitaCommercial Trust and Mitsubishi Estate Asia owns 50%, 40% and 10% interest respectively in MSO Trust, an unlisted special purpose sub-trust set up to undertake the development.

The estimated cost of $1.4 billion will be funded by the three parties in proportion to their respective joint venture interest. Under the MAS property funds guidelines for Singapore REITs, CCT may only develop projects the total cost of which must not exceed 10% of its total asset size. As the estimated total project cost will exceed such limit, the Manager of CCT required joint venture partners for the redevelopment of the property by way of a special purpose vehicle in which CCT will own a 40% interest and the joint venture partners, the balance.

MSO Trust will acquire MSCP, currently owned by CCT, at a price of S$56.0 million. This price is 15.2% above MSCP’s valuation as a car park facility as at end-December 2010. In May 2011, the Manager of CCT had appointed Jones Lang LaSalle Property Consultants Pte Ltd while the trustee of CCT had appointed CB Richard Ellis (Pte) Ltd to conduct independent valuations of MSCP. The average value of the two independent valuations was S$53.3 million.

Both valuations were done based on the residual value of MSCP to be redeveloped into an office building, taking into account that a differential premium equal to 100% of the enhancement in land value resulting from the change of use of MSCP from “transport facilities” to “commercial” shall be payable to the government. This differential premium and other land related costs payable to the government will constitute 48% of the total project development cost of S$1.4 billion.

The payment of the differential premium is one of the conditions imposed by the government for its granting the change of use. The differential premium is unlike a development charge where the latter is based on 70% of the enhancement in land value.

A call option is granted to CCT to acquire CapitaLand’s and MEA’s interest in the MSO Trust or the completed development. CCT may exercise the call option any time over a period of three years after temporary occupation permit of the new office tower is obtained, subject to terms and conditions.

Market Street Car Park has been closed permanently from 30 June 2011. Assistance has been rendered to the retail tenants and season car parkers since 19 April 2011 to facilitate the property’s closure. Help included the offering of alternative retail space at other properties owned by CCT, such as the neighboring Golden Shoe Car Park. For season car parkers, a list of alternative season parking within Market Street’s vicinity was provided.