Risky Business: Bangkok's Tallest Gamble Is Ready to Open

Announce plans for Bangkok’s tallest building in the depths of a financial crisis. Persist through violent street protests and a military coup. Target wealthy foreigners who would pay millions for an apartment. People thought Sorapoj Techakraisri was crazy. That he was only in his 30s added to the skepticism.

But the 77-story MahaNakhon tower is finally nearing completion, and in September its first residents will be moving in. Located in the upmarket Silom/Sathorn district, the tower boasts a pixelated facade that shimmers like a glass curtain and twists like a spiral–effects that are created by virtue of every floor being different. It has already collected a bevy of awards and a spot on maps of the world’s most notable architectural sites. By far the largest skyscraper on the skyline, MahaNakhon will contain 209 Ritz-Carlton Residences, ranging in price from $1.4 million to $10 million; a five-star Edition Hotel by Marriott International; and flashy boutiques and restaurants.

Even bolder than Techakraisri’s $600 million bet on MahaNakhon–a name that comes from the Thai word for Bangkok–is his vision for the city. He believes that Bangkok is on the verge of a metamorphosis, even as the Thai economy continues to struggle. He sees Bangkok as an alternative to Singapore as a hub for the Mekong region of Southeast Asia, drawing a wave of rich expatriates who will require the amenities that MahaNakhon promises. “It’s almost like a new market coming out,” he says. “Wealthier people have more to spend, and they are willing to spend. That’s what we see.”

Techakraisri’s company, Pace Development, is also catering to this predicted new class of expats with the MahaSamutr, a country club and villa development 200 kilometers outside Bangkok in the seaside town of Hua Hin. “What we are doing is very different from the rest of the market here,” he says. “Before these projects, this level of superluxury did not exist in Thailand. Now it does.” Says Andrew Gulbrandson at Jones Lang LaSalle, “No other developer had shot that high before.” In fact, he thinks, Pace will cement its position as Bangkok’s leading luxury developer once owners begin to move into MahaNakhon.

Smartly dressed in black and white, Techakraisri, 38, flashes a confident smile that belies a white-knuckled ride these past several years. The baht is at a six-year low, annual economic growth is below 3%, and exports are down, as are agricultural prices–all compounded by last August’s terrorist bombing and two years of martial law that’s set to continue indefinitely. Pace’s market capitalization is just $315 million, a mere 40% of the value of its assets, and profits are scarce. “It’s not yet a solid company in terms of earnings, though it should do fine,” says Avin Sony of Asia Plus Securities, the Thai firm that managed Pace’s initial public offering in 2013. He predicts that as buyers take possession of their units in MahaNakhon this year, Pace will post a small profit, followed by much bigger earnings in 2017.

Recommended by Forbes
Political and economic woes affect the flailing lower end of the property market, but they don’t appear to hurt the top. “This is the seventh coup in my lifetime,” sighs Techakraisri, who hails from a family of developers. “Long-term players are waiting out the political instability. They believe in Thailand’s future. That’s what they bet on.” Tim Skevington, managing director of property firm Landscope Thailand, agrees: “Political and economic problems do affect some high-end buyers, but in spite of the problems, demand has been high, and once we come through the current situation, demand should be even higher.”
Indeed, the superluxury segment of Bangkok’s property market appears to be booming. Several competitors–including Four Seasons, Sansiri, Mandarin Oriental and St. Regis–are following Pace’s lead with condos in broadly the same price range of $8,400 to $9,900 a square meter. Property agents estimate that 2,400 superluxury units will hit the Bangkok market by 2019. Aliwassa Pathnadabutr, managing director at property company CBRE Thailand, says most buyers are actually locals, many from a young generation of Thais attracted to new freehold condos (as opposed to ones with renewable 30-year leases) with two or three bedrooms, which they regard as more desirable than the types of houses they grew up in.

But from the start Pace took its sales pitch abroad, initially snubbing the services of outside realtors. During road shows in Singapore, Hong Kong and Dubai they found property investors eager to escape local cooling measures, including bigger down payments and higher stamp duties. Pace has now sold 70% of MahaNakhon–one-third to locals and the remainder to buyers from Singapore, Hong Kong, Europe and, to a lesser extent, the Middle East, North America and Taiwan. The company says it’s holding back the remainder until the building is finished so it can fetch higher prices. (Pace is also building two superluxury condo developments and a resort in Hokkaido, Japan.)

“A record ratio of MahaNakhon buyers are foreigners,” says Bastien Forzy, whose Sense Property Group brokers deals for foreign investors. “Some of our clients were first spooked by MahaNakhon’s high prices, but now they are coming back to it as one of their first choices,” he says, noting that Asian buyers often pay big premiums for new freehold condos. “Demand will only increase. Rich people are more and more numerous.” But back at the time of MahaNakhon’s official launch in May 2009, ” very few were those who believed in the project,” he recalls. “ It was just too big, too expensive, too architecturally different from other luxury residences in Bangkok.”

Techakraisri’s dream began not long after the turn of the millennium. Already well-known from the local celebrity magazines that routinely featured him, he predicted that wealthy buyers would pay up for Bangkok properties in the right location, designed by the right architect and interior decorator, with first-rate service and property management. Plans for what became MahaNakhon took shape after he set off on his own in 2003, rather than stay with his family’s real estate company, L.P.N. Development, which aims at the middle to lower-middle market. His father, Sumet, is that outfit’s largest individual shareholder, and his mother, Yupa, and her two siblings are board-level directors. In 2008 FORBES ASIA named L.P.N. to our annual roster of the best listed companies in the Asia-Pacific region with less than $1 billion in annual revenue.

Techakraisri’s first move was to pick a fellow jet-setter, German architect Ole Scheeren, to design his tower. Scheeren had risen to prominence as a Beijing celebrity linked with local princelings during the construction of the iconic CCTV building through Rem Koolhaas’ Office for Metropolitan Architecture. Numerous delays intertwined with the global financial crisis put off the ground-breaking until 2011. Two years later Techakraisri’s move to take Pace public was daring because the company had no earnings potential in the short term. “Pace was in survival mode,” says Asia Plus Securities’ Sony, who notes that MahaNakhon’s sales at the time had stalled at 30%. “It needed to go public because it needed the money.” The timing was unfortunate: Street protests sent shares down 13% on day one.

Then in March 2014 Pace won a reprieve: It managed to buy the land freehold; previously it had leased the land underneath MahaNakhon. That nearly tripled the company’s share price and unleashed the sluggish sales. Not only that; Techakraisri also found a way to circumvent the 49% cap on sales of apartments to foreigners–he included the hotel and observation deck as part of the equation.

Bolstered by his twin wins and undeterred by red ink, Techakraisri forged ahead. In 2014 he bought a U.S. chain of food shops called Dean & DeLuca. It seemed like another reckless move as the chain’s costs soon spiraled beyond projections (see below, From Soho To Bangkok). “Pace was a very small company doing larger-than-life projects,” recalls Sony. “There was so much risk.” But then Techakraisri was encouraged by the launch last December of the ASEAN Economic Community, which might eventually unite a market of 600 million consumers and allow the free movement of goods, services, workers and capital among the ten countries in ASEAN. He expects Bangkok to become the gateway to the community, the home base for a wave of senior executive expats with business in Thailand, Cambodia, Laos, Myanmar and Vietnam. Pace projects that within three years the number of top-level managers in Bangkok will double, and in five years quadruple. “The AEC is a long-term play,” he says. “This region is doing better than anywhere else, and when Bangkok has a more stable government, it will be the center for the East. Expats will live in Thailand and visit their factories in the hinterlands.”

Landscope Thailand confirms that growing numbers of expat executives use Bangkok as a base because of the lower costs and easy access. MD Skevington notes a recent influx of technology-related business as well as the longstanding presence of Japanese companies that make Thailand a production base. Bioplastics, biopharma and e-commerce outfits, some with regional operations, are also coming, says Gerrit Bouckaert at recruitment firm Robert Walters Thailand. And investors applaud the lower baht, which makes property seem like a bargain compared with Singapore, for instance, where Ritz-Carlton Residences sell for five times more.

Still, property agents and outside consultants question how many expats coming to Thailand can afford to rent or buy superluxury units. Most expat packages would not cover the cost of MahaNakhon, says consultant Daniel Giles at the Thai office of Vriens & Partners. “It’s more likely that residents will be independently wealthy international finance people who are not necessarily tied to operations and management in the region.” Adds CBRE’s Pathnadabutr, “Buyers use the condos as second or third homes. The big expectation is on capital appreciation.”

Once the doors open at MahaNakhon and prospective buyers can see the finished product, says Techakraisri, they can expect a higher price tag. “It becomes an emotional sale. When they see the view?-and the residence, the sky bar, the hotel–they will just want it.”

(Go to forbes.com/solil to read about the $12 billion family that is landlord to Manhattan’s Madison Ave.)

Shoppers at Dean & DeLuca’s store in Tokyo’s Shibuya district. Credit: Robert Alexander/Getty Images

FROM SOHO TO BANGKOK
Why would a Thai property tycoon, in the middle of building a skyscraper in Bangkok plagued with delays, buy a little-known chain of upmarket food shops that started in New York? Sorapoj Techakraisri had his reasons. He paid $140 million in November 2014 with an ambitious plan in mind–to build a global brand that would cater to foodies everywhere and boost the bottom line of his company, Pace Development.

So far the chain, Dean & DeLuca, has done the opposite. It’s still producing operating profits, but debt service and the high cost of opening new stores are keeping it in the red overall. It doesn’t expect to stop losing money until 2018.
Techakraisri was well acquainted with Dean & DeLuca when he made the purchase. In 2010 he had signed a licensing agreement to operate multiple stores and cafes in Thailand. The local flagship opened in 2014 on the ground floor of MahaNakhon Cube, a collection of shops and restaurants next to the skyscraper MahaNakhon. It offers a sleek decor and smart-looking staff for patrons who fill dining tables or stock up on gourmet staples, wines and prepared foods for dining at home. For Techakraisri it will provide MahaNakhon residents with a chic luxury environment where, as he puts it, “they feel good about living.”

The purchase came with 42 outlets–some owned by Dean & DeLuca, but most licensed–in eight countries. Now that’s up to 50, including 6 in Thailand, 25 in Japan, 3 in Seoul, 2 in Singapore and one in the Philippines. Growth has been slower than Techakraisri expected, but come 2018 he envisions 95 outlets in at least 15 countries, another 100 U.S. delis in large- and small-store formats, a thriving e-commerce site and a listing on the New York Stock Exchange.
To raise the brand’s profile in the U.S. he signed on to sponsor a PGA golf tournament for six years–the first Dean & DeLuca Invitational was held in May in Fort Worth, Texas. And Techakraisri just launched “Prince Street: a Fresh Podcast with a Culinary Heart,” named after Dean & DeLuca’s first location in the SoHo section of Manhattan–which retailers Joel Dean and Giorgio DeLuca opened in 1977. In the long term Techakraisri wants Pace’s earnings split 50-50 between property development and food-and-beverage interests. “It’s a good idea because property is volatile,” says Avin Sony of Asia Plus Securities in Bangkok. “Pace needs recurring earnings.” –J.P.

Published : http://www.forbes.com/sites/forbesasia/2016/07/06/risky-business-bangkoks-tallest-gamble-is-ready-to-open/#92fec417534a

Newsarchive

Links

Latest news