Go-ahead for Swire project

Swire Properties will begin a HK$3 billion office redevelopment in Quarry Bay following its success in unifying the ownership of Melbourne Industrial Building yesterday. The company was the sole bidder for the industrial building, making the opening offer of HK$310 million also the reserve price at the public auction ordered by the Lands Tribunal. The property was ordered to be auctioned after a failure to settle differences between Swire Properties and a few individual owners of the building. The group, which had acquired 98 per cent of the land titles of the building, earlier applied through the Land (Compulsory Sale for Redevelopment) Ordinance for an auction of the whole building. Swire Properties general manager of development and valuation Gordon Ongley said the purchase price, an average of HK$866 per square foot, reflected the market accommodation value for offices. The building will be redeveloped with neighbouring Aik San Factory Building, which was bought out by Swire through private negotiations earlier. Mr Ongley said the group had spent six years and a total of HK$1.5 billion, including the interest expenditure, in acquiring the ownership of Melbourne Industrial Building and Aik San Factory Building. 'We expect to invest an additional HK$1.5 billion for the construction of the combination (of the two sites),'' he said. The two sites, spanning about 54,800 sq ft, will be redeveloped into a 40-storey grade-A office tower with a gross floor area of about 822,000 sqeft. The estimated total investment cost of HK$3 billion represents an average development cost of more than HK$3,600 per square foot. Mr Ongley said the detailed development plan had yet to be finalised but the future building could be connected with other office towers in Island East as well as with public transport. 'The redevelopment will be finished at sometime in 2006 ...adding our leasing portfolio in Island East to 6.8 million sq ft,'' he said. A spokesman for Chesterton Petty, which conducted the auction, said Swire Properties was the only registered buyer yesterday. 'Other developers who had shown interest earlier did not participate in bidding. Maybe most of the interested parties recognised there was a limited chance to outbid the majority owner because it had acquired over 90 per cent of the land titles,'' he said. Developers, including Nan Fung Development, sent representatives to the auction hall yesterday but they stayed only on the sidelines. Swire Pacific group deputy chairman Keith Kerr attended the auction but declined to make any comment. Melbourne Industrial Building was completed in 1977, with a lease grant for 999 years and unlimited use. Developers can redevelop the site into commercial use without paying extra premium. The site was also part of the Taikoo Sugar Refinery. The refinery area has been converted into the modern Taikoo Place business hub, a key part of Swire's Island East portfolio. The portfolio, including eight grade-A office towers and three 'techno centres'' converted from industrial use, amount to 5.7 million sq ft. The ninth office building, Cambridge House, due to be completed next year, will provide 300,000 sq ft. Mr Ongley said Swire had no plans for further acquisitions in the area because supply was adequate to meet demand. 'We have no immediate plan to redevelop Warwick House, Somerset House and Cornwall House,'' he said. The group had secured approval to build a 1.45 million sq ft office tower on the sites of Somerset House and Cornwall House. A spokeswoman for Swire Properties said that the three older industrial buildings, categorised as techno centres, were generating satisfactory rental yields compared with nearby grade-A offices. Meanwhile, the group's Cityplaza Two redevelopment at the Mount Parker House site and Cityplaza One extension has been held up by an on-going premium case with the Government. Swire appealed in the High Court last year against a decision that favoured the SAR Government to charge a premium for three Cityplaza office developments. The charge, estimated at HK$4.5 billion in 2000, was payable for Cityplaza One, Cityplaza Three and Cityplaza Four. Swire would be required to pay extra premium for the Cityplaza Two redevelopment and Cityplaza One extension if it lost in appeal.