US group incurs hefty loss on luxury condo investment

PHOTO: US group incurs hefty loss on luxury condo investment

SINGAPORE - United States financial services group Wachovia has sold its investment in City Developments' (CDL's) freehold Grange Road project at a hefty loss.

The sale, which is likely to cost Wachovia a loss of $55 million, underscores the continuing weakness in the high-end residential property market, despite hopeful talk of a recovery next year.

It is also a sign that Wachovia does not believe it can recoup its investment in Cliveden at Grange in the short to mid-term, after making a big bet on the property at the height of the high-end rally five years ago.

Wachovia teamed up with CDL in November 2007 to acquire 44 Cliveden homes for $432.4 million. Under the deal, which worked out to an average price of $3,750 per sq ft (psf), Wachovia's real estate arm, Wachovia Development, took a 60 per cent stake in the joint-venture company, Grange 100.

Grange 100 is the vehicle which owns the 44 units - a mix of three- and four-bedroom apartments and penthouses in two of the four towers at Cliveden.

Based on its equity share, a back of the envelope calculation puts Wachovia's investment at $259.4 million. In selling its 60 per cent stake in Grange 100 to CDL for $204.5 million, the average price works out to $2,956 psf.

That is a drop of 21.2 per cent from the price it paid in 2007.

Analysts reckon the size of this sale at such a steep price drop will have an adverse impact on the Urban Redevelopment Authority's (URA's) private home price index, particularly the sub-index for the central core region.

Wachovia's actual loss may vary as the $204.5 million price tag includes advances it had extended to Grange 100.

CDL said in a statement that, in acquiring Wachovia's stake, it has taken a medium- to long- term view of Cliveden and has confidence in the project.

"The consideration was arrived at on a willing buyer, willing seller basis, taking into account the net asset value attributable to the Wachovia shares based on, inter alia, the financial statements of Grange 100 and outstanding shareholder loans," it said.

A search with the Accounting and Corporate Regulatory Authority shows that Grange 100 has accumulated losses of $121.8 million as of 2011, since it was set up in 2008.

The last time Cliveden saw any transaction, based on caveats lodged, was in April 2008, when a 2,842 sq ft unit was sold for $11.1 million, or $3,914 psf.

The 110-unit Cliveden was completed last year. URA data shows that the condominium is 80 per cent sold, at prices ranging from $3,265 psf to $4,313 psf.

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