Sinar Mas Land joined the London investor elite with its purchase of the Alphabeta building last month. Jack Sidders talks to the man in charge of the Indonesian international group’s portfolio as it lines up its next move. Portrait by Louise Haywood-Schiefer
Aswin Gunawan cuts a distinctive figure crossing the vast lobby of corporate law firm Mayer Brown’s Bishopsgate office. Earphones in and sporting a fitted tweed jacket, ankle-grazer turn-up jeans and bright red socks he could easily be mistaken for a tech client. Either that, or a trainee who didn’t get the memo about what lawyers wear to work.
So it is with some surprise that we exit the lift on the same high-rise floor and discover we are heading into the same meeting room for the same interview. Because the fresh-faced 33-year-old is in fact the head of mergers and acquisitions at Sinar Mas Land, the $1.4bn (£910m) Singapore-listed real estate arm of Indonesia’s vast Sinar Mas Group. And he has spent the last three weeks holed up in the skyline view office at 201 Bishopsgate, EC2, finalising the details of his latest £280m deal – the acquisition of the Alphabeta building, EC2, on the border of the City and Shoreditch. One of the most sought-after offices in London.
Perhaps that goes some way to explaining the broad grin – though you get the impression it is a fairly permanent fixture.
“Thank you so much for coming,” he beams. “Martin has been letting me use the office while I’m over here.” He nods to Mayer Brown partner and head of real estate in Europe Martin Wright and a stack of documents across the table before settling down to reveal why this Indonesian conglomerate has joined the rush of global investors chasing London property.
International ambition
Like many of Indonesia’s largest companies, Sinar Mas Group has a labyrinthine structure, with subsidiaries involved in everything from palm oil and paper, to telecommunications and banking. The real estate division is principally involved in domestic development, with a 25,000-acre Indonesian land bank of major residential, industrial and office led schemes. It is separately listed in Singapore but remains majority owned by the group, which is still controlled by the Widjaja family, whose patriarch Eka Tjipta Widjaja is said by Forbes to command a $5.8bn (£3.8bn) fortune.
“Most of our income comes from residential property development” says Gunawan.
“So back in 2011 the board decided that we needed to de-risk ourselves in terms of the property cycles and we needed to invest more in steady income-type investments.”
The search for recurring and stable income led the company to launch an international investment programme, targeting “established, transparent, liquid markets” including the US, UK, Germany and Australia, says Gunawan.
It secured its first deal early in 2013 with the £84m acquisition of the New Brook Buildings at 8-18 Great Queen Street, WC2, near Covent Garden.
The deal typified much of Sinar Mas’s early investment strategy – a multilet scheme with a diverse range of tenants offering strong covenants, including some exposure to the growing tech and creative sectors. But what happened next did not.
The company had bought into London just as yields in key markets, including Midtown and the City, began a period of rapid compression. Between the firm’s debut deal at the start of 2013 and its latest acquisition this year, City yields tightened 150bps from 5.5% to 4%. The sharp yield movement across London, coupled with some unsolicited approaches, led Sinar Mas to sell New Brook Buildings just 18 months later in December 2014 for £113.7m – a 4.75% yield – to clients of UBS.
“At first we didn’t say yes,” says Gunawan, as he explains the decision to sell.
“But we just thought that we had hit our return criteria and we can probably move on from that. But we did not take a single cent of the capital back home, we have reinvested here. The capital is here today, which is reflected in our recent acquisition of the Alphabeta building.”
At £280m – a 4% yield – the Alphabeta acquisition was big for Sinar Mas – going beyond the £50m-£200m sweet spot Gunawan says he generally targets.
But the building was a good fit for the company, offering further exposure to the creative and tech tenants which occupy the converted banking hall, highly reversionary rents on the early leases signed by developer Resolution Property before the City fringe market really took off and long-term secure income which diversifies the company against its more opportunistic development business domestically.
While the yield is among the keenest paid for a City building this cycle, it still reflects value according to Gunawan when set against the 2% yields it is used to paying for core product in places like Singapore – where it initially built its investment portfolio before launching the global expansion outside Asia – as well as offering the potential for rental growth.
But the next phase of the company’s overseas investment strategy does not involve just buying low-yielding trophy assets.
“The group is now looking into more adventurous projects,” explains Gunawan.“Not necessarily big Broadgate-type developments,” he adds, pointing out of the window at British Land’s and GIC’s 4.7m sq ft City office complex. “But maybe we would get our hands a bit more dirty this time.”
Development potential
Gunawan currently leads Sinar Mas’s overseas deals alongside executive director Ferdinand Sadeli via trips to London, and the company does not have anyone permanently based in the UK. “Everything has been done based from Indonesia and Singapore”, he says.
“We have got good friends such as Mayer Brown and the financing team, and the agents – we have built a team that is not Sinar Mas Land-centric. If we were to do a development of course, we would have to set up a small platform here just to start. And in terms of partners, we would be looking to partner up with established local developers.”
And plans for the first development might not be that far away. In between buying New Brook Buildings and Alphabeta, Sinar Mas acquired another London office, 10 Pulteney Street in Soho, W1, from GE Real Estate for £57m.
The 47,000 sq ft block is fully let to listed marketing company Creston until September 2019.
At the time the building was put up for sale the five-year lease put many investors off the opportunity, given it was neither immediately ripe for redevelopment nor providing long-term stable income, but for Sinar Mas it was just enough time to get its head around how to turn the current £42.97 per sq ft low passing rents into something more in line with the £80 per sq ft plus now being achieved in the surrounding area.
The plans remain at an early stage but Gunawan says it is a sign of things to come.
As with Gunawan’s eye-catching outfit, Sinar Mas has defied expectations of what an Asian purchaser of trophy London offices should look like. Contrary to expectations, it is not just here to buy and hold long term, to seek well-let office blocks on long leases which are low risk and require minimal management. Instead it has bought and sold thoughtfully and is getting ready to take on more risk.
If the company is a sign of what’s to come from the batch of big investors benefiting from the rapidly expanding Indonesian economy, then we may soon see more big Indonesian grins walking up and down Bishopsgate.
Search in the City
Indonesian investment into London real estate has thus far been limited to a handful of high-profile deals.
Alongside Sinar Mas, the highest-profile Indonesian investor to have bought in London is Martua Sitorus, the billionaire co-founder of the world’s largest palm oil processor Wilmar International.
Alongside Malaysian co-founder Kuok Khoon Hong – but separately from their Wilmar vehicle – Sitorus bought the Aviva Tower at 1 Undershaft EC3, for £288m in 2011 and plans are expected to be unveiled shortly for a new super tall office building to replace the existing structure.
Several other conglomerates and high net worth individuals have been rumoured to be looking for acquisition targets in the City but most have yet to secure a deal.
