FMI’s Landmark project moves forward without ‘critical’ lease extension

Restoration efforts are ongoing on the centrepiece building of a major development project in Yangon backed by business tycoon Serge Pun, despite continued difficulties in securing a critical lease extension for the mixed-use property.

Major work on the Landmark Project, estimated at more than US$400 million and spread over more than 10 acres of prime downtown land, has been delayed for more than a year due to the inability to secure a lease extension for the site from the Ministry of Railways.

The site contains the heritage-listed Burma Railways headquarters building, constructed in the 19th century, along with FMI Center and the now-shuttered Grand Mee Ya Hta Executive Residences.

But Mr Pun, who chairs public company First Myanmar Investment (FMI), Serge Pun & Associates (Myanmar) and Singapore-listed Yoma Strategic Holdings, said last week that investors had agreed to move ahead with the project under the existing lease terms.

While efforts continue to secure the longer lease, restoration work on the railways building, which will be turned into a LUXURY HOTEL, will continue to move forward.

The project was announced in November 2012 and is a venture between Yoma and SPA that also involves the International Finance Corporation, Asian Development Bank and partners from Japan and Hong Kong.

Following the project’s announcement, Mr Pun applied to the ministry to extend the original 1995 lease for the maximum 70 years – 50 years, with two 10-year extensions – allowable under current investment laws. To date this extension has not been approved.

Yoma announced in June that instead of acquiring 80 percent of the Landmark site from SPA on the longer lease terms as originally planned, it will now acquire the site with its existing leases – two smaller plots with 24 and 26 years remaining on the leases – with a first payment of US$43.2 million.

The remaining payment of up to $38 million will be paid to SPA when the lease extension is secured. The acquisition will be funded by a 1-for-8 rights issue at S$0.38 that Yoma is expected to conduct by October. SPA is also expected to gain approval for the transfer of the site from the Myanmar Investment Commission to Yoma by the end of December 15.

Mr Pun, who met recently with Minister for Rail Transportation U Than Htay, said he remains confident that the maximum lease will be granted to SPA but conceded that the timeline remains unclear.

“I have absolutely no doubt it [the lease extension] will come through. I am hopeful that it will be as soon as possible,” Mr Pun told The Myanmar Times. “It is just bureaucratic procedures. It takes its time and its toll.”

An official from the Ministry of Railways said that the ministry was still scrutinising the proposal and that no decision had been made on whether to grant the extension. The official gave no reason for the delay in granting the lease, but said that the ministry was not malicious in its intent or purposely trying to prolong the process.

In a note to investors dated June 17, Eli Koksiong Lee, an analyst at OCBC Investment Research, said this two-step process would allow construction to begin on the office, retail and hotel components of the project but pre-sales of the residential piece of the project would be delayed until the maximum extension is obtained. Mr Lee said the target date for the new lease is now the end of 2015.

The Burma Railways building will be developed into the Peninsula Hotel Yangon in partnership with Hong Kong-based HK & Shanghai Hotels (HSH Group).

In April, Martyn Sawyer, HSH Group director of properties, told The Myanmar Times that the group was satisfied with the progress being made on the property and it was taking a long-term view on the project.

A spokesperson for HSH Group said that their position had not changed following the June announcement. An opening date for the hotel has not been set, but Mr Pun said that he expected the project to take around three years to complete.

The IFC and ADB have each agreed to invest US$70 million in a separate portion of the project, comprising $50 million in debt and $20 million in equity. Financing from the IFC, which is a member of the World Bank Group, was approved by its board on September 4. The ADB declined to comment on any aspects of the project, citing confidentiality. A post on the group’s website said that approval for financing is pending.

Vikram Kumar, resident representative for the IFC – which is working with Yoma on three projects in Myanmar – said investors consider it “critical” that SPA is able to secure the lease extension.

“As financiers, of course, we would prefer the lease to be in place before we invest, along with the Japanese investors,” Mr Kumar said. “You don’t invest a half a billion dollars unless there is visibility on the underlying lease.”

In an earlier interview Mr Pun said that changes at the top of the Ministry of Railways had led to the lease delay. The ministry has had two different ministers in as many years and the most recent change came in July 2013, when U Zeyar Aung was replaced by U Than Htay, while a long-serving deputy minister, Thura U Thaung Lwin, was moved to another position.

Mr Pun was hesitant to place the blame on any specific individuals last week but he did point out that U Than Htay had now been on the job for more than a year.

“I was hoping that it would have started much earlier, but that is how it is,” he said.

The project has planning approval in principle from Yangon City Development Committee, complies with its new zoning plan and faces no objections from heritage campaigners.

If permission to extend the lease is secured from the Ministry of Railways, it would then need to be cleared by the Myanmar Investment Commission.

Studio Lapis, a Singapore-based heritage consultancy that specialises in architectural conservation, started its assessment of the building in April 2013 and is outlining restoration needs.

Ho Weng Hin, a partner at Studio Lapis, said that the building’s mix of local and imported materials reflected the fact that Yangon – then Rangoon – was a bustling port at the centre of the British Empire when it was built.

The building’s lower floor is constructed from laterite blocks – rich clay-like soil cut from Myanmar’s riverbeds that gives the building its distinctive red colour through its high iron oxide content. The intricate cast-iron canopies that frame the hundreds of windows in the building were imported from Scotland.

The construction firm that will carry out the work will be selected through a tender process.

In addition to the Peninsula, Yoma signed a non-binding memorandum of understanding with Mitsubishi Corporation and Mitsubishi Estate in October 2013 that will see a separate business hotel, serviced apartments, a high-end condominium, and retail and office space developed. Mitsubishi Corporation and Mitsubishi Estate declined to comment when contacted by The Myanmar Times.

The business hotel was originally linked to US-hotel management chain Starwood but Mr Pun said no decision had been made on which firm would manage the property. A number of international hotel chains had shown considerable interest in the project, he said.

“You can name any [hotel chain] and there is probably a good chance” they have expressed interest, Mr Pun said.


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