By KINIBIZ
Aspen Group CEO Murly Manokharan says his plan to develop Penang’s first privately funded affordable housing initiative was an easy sell to the state government, investors, and buyers. However, his mixed development in Batu Kawan was a harder sell. The entrepreneur tells KINIBIZ how he convinced Ikea to invest in the 245-acre Aspen Vision City and open the first Ikano shopping outlet in Northern Malaysia.
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Last year, Aspen purchased 245 acres of land in Bandar Cassia, Batu Kawan on the mainland side of the Penang Second Bridge to build the Aspen Vision City mixed development. The land would accommodate 12,000 residential units and 17 million square feet of commercial space.
But getting potential investors and partners to believe in the Batu Kawan location was rather different from TriPinnacle’s 1,200 units in Tanjung Tokong, on prime Penang Island land.
“In a nutshell, Batu Kawan is the only place in the entire northern region where infrastructure has far exceeded development. Today, it looks empty but infrastructure is first class: you have the RM4.5 billion Penang Second Bridge and the North-South Expressway at your disposal. You have all major transport arteries there. Ask any developer, and their key constraint is often infrastructure.
Murly Manokharan
“The entire Batu Kawan spans 6,000 acres, of which 1,300 acres have been earmarked for and mostly taken up by manufacturing industries such as automotive and lighting. These already employ 10,000 people in Batu Kawan, but there is no commercial centre because the state decided it was not going to sell land without commitment from developers to develop,” Murly Manokharan pointed out.
The Aspen Group chief executive officer (CEO) calls Batu Kawan the only place in entire Penang with a local plan, an eco-city guideline telling people exactly what’s going to happen in each individual land parcel.
“The state doesn’t just sell land to do whatever you want. It calls tenders for the sale of lands with the commitment to develop certain key components. It is one of the most exciting areas to be in now,” he remarked.
The freehold land Aspen purchased for RM45 per square foot (psf), now it could reach RM120psf easily; while leasehold agricultural land in Batu Kawan is already hovering around RM50 to RM60psf.
But those who buy agriculture land have to convert it for development and pay a conversion premium. According to Murly, all-in raw costs for the land would exceed RM100psf.
While so far only first phase – Verve shop offices – has been launched. Office spaces, an international school, a 20-acre park, and an international school are all in the pipeline. And strategically placed near the upcoming KDU College Penang campus too, by rival developer Paramount Corp.
Residents within Aspen Vision City have access to an integrated shopping mall anchored by Ikea, standalone retail and commercial components, a four-star hotel, and a Columbia Asia hospital, in addition to an integrated central transportation hub for Seberang Perai.
The Ikea factor
Thus far 80% of the Verve shop offices have been sold, accounting for RM600 million unbilled sales. Even without the affordable housing tag, Aspen’s development is priced rather attractively. Verve comprises 441 units of three- and four-storey shop office lots, ranging from 3,300 to 13,150 square feet each spread over a total 35 acres of freehold land.
But it is the upcoming Ikea furniture outlet and Ikano shopping mall that made investors and buyers sit up and pay attention to the fledgling Aspen. Not only did Ikano – the local Ikea franchisee – come in to manage the mall and Ikea store, it also took an equity stake in the entire mixed development.
“When we announced our partnership with Ikea, people started opening up to us, asking who we were, that we could bring in Ikea, not to just to do the shopping centre, but also as equity partners in the entire mixed development, which has a gross development value of RM8 billion.
“This was the first time in Ikea’s history that it came in as equity partner in a mixed development, and it had been waiting for an opportunity like this,” Murly said.
Aspen and Ikano jointly bought 245 acres of land from state arm Penang Development Corp for RM483.95 million last September for Aspen Vision City. The Ikea store and the first phase of the mall will span 30 acres, while another 45 acres will be set aside for phase two of the mall. The remaining 170 acres will be for mixed development.
According to Murly, Aspen has an 80% stake in the mixed development and Ikano has 20%. In the shopping mall, it is 70:30 in Ikano’s favour. For the whole project, Aspen retains majority with a 67% stake, while Ikano holds the remaining 33%.
“They will take the lead in the mall component, while we lead on the mixed development. We have a committee that sits and deliberates strategies on both. The mixed development also has some retail components of its own, which Aspen will sell, not manage.
“Both parties will own the mall, which will be managed by Ikano. We are going build an Ikea store right next to the mall, which is going to be one of the largest in the country as it is going to cater to the mass market,” Murly said.
Needless to say, it was this partnership that lent itself to Ikea becoming Aspen’s go-to-furnisher for its top-up residential housing packages.
While TriPinnacle’s affordable housing will have units furnished with Lack tables, it is Vision City residents who will have easy access to the nearby Ikea store, should they need more Billy bookcases.
Retail aside, Murly said Aspen will announce the operator the four-star hotel by end of this year.
Ivory’s mysterious play
While Murly did purchase the Tanjung Tokong land for TriPinnacle for RM35 million from Ivory, his former employer’s involvement with Aspen’s activities didn’t stop there. When Aspen Vision Land Sdn Bhd – the concession holder for Aspen Vision City – was set up in 2013, Ivory bought a 49% stake in it from Aspen for almost RM20 million.
“In 2013, I was attempting something big so I needed an investor. So I approached someone I already knew – Ivory’s group CEO Low Eng Hock who I’m comfortable with. He agreed to participate in Aspen Vision Land,” Murly recounted.
From the start, Bursa Malaysia filings and news reports indicated that Ivory was only an investment partner and had no say in the direction of Aspen Vision City. In January 2015, Ivory sold its stake back to Aspen for RM55 million, when work for the Verve shop offices will only commence the fourth quarter of this year.
This translated into a cool RM35 million profit for Ivory, which the company told Bursa would go to concentrate on projects in the Penang Island. But if Batu Kawan was really such a good play, why didn’t Ivory sit in a few more years for it to be more earnings accretive, KINIBIZ asked Murly.
“I would not know exactly why Ivory divested its stake in Aspen Vision Land because I don’t sit on Ivory’s board anymore. But I have a good relationship with the board and major shareholder Low.
“Along the way, I think Ivory was looking at its own internal issues. Maybe Ivory wanted to degear or invest in other projects? I believe Low realised he had two big projects ongoing – one with Tropicana on Penang Island and one with Aspen on the mainland – and Ivory had a minority stake in both.
“Maybe as he went out to talk to investors or shareholders, shareholders wanted Ivory to take a lead role in its projects. Maybe that’s why he exited Aspen Vision Land to focus on something else in store – we don’t know.
“But to me, it was an absolutely fantastic opportunity for me to consolidate. When I knew it was for sale, I pulled funds together to buy it,” Murly said, keeping mum on his investors and capital.
Construction on the Verve shop offices will kick off the fourth quarter of this year and this first phase is slated for completion in 2018, while work on the Ikea and Ikano components will follow the same timeline. The entire Aspen Vision City is expected to be completed in 2025, keeping Murly’s plate full for the next decade.
Nevertheless, Aspen is not slowing down, with plans to expand its affordable housing initiative to Subang and list on Bursa by early next year. In the final part of this series, Murly tells KINIBIZ how Aspen has been laying the groundwork with both regulators and the country’s largest funds to herald its entry into Klang Valley.
Yesterday: Why affordable housing? Why now?
Tomorrow: Taking on the Klang Valley and Bursa
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