Sheng Tai International pivots its business model by rescuing and rehabilitating Rehabilitating projects to aid recovery.
Most would define the property industry as one of the most competitive industries especially here in Malaysia where developers are vying to attract narrow pools of resources at times to their developments. This is even especially pertinent in times of the ongoing pandemic.
Indunated with a flood of property options and economical challenges in the last 10 years this has given rise to the number of abandoned property developments. Given this development, Hong Kong-based property company Sheng Tai International (STI) saw a necessary niche in the market to emerge as a “white knight” in this tough economic climate while growing its business.
Getting to know Sheng Tai International
STI is an award-winning property company that was established in Hong Kong in 2012 by Dato’ Leong Sir Ley. The company’s main business include property development, hotel resort ownership, acquisition and development as well as real estate services. Since its establishment, the company has impressively developed properties in key cities around the world such as Malaysia, Hong Kong, Japan, China, Korea and the US. Incidentally, the company’s strength is its international marketing for properties and developments.
The beginnings of being a “White Knight
“White knight” refers to a person or entity that comes to someone’s aid or a person or company making an acceptable counter-offer for a company facing a hostile takeover bid.
The company may be currently focussed on the development and promotion of its flagship project named The Sail Melaka backed by an impressive 6.5 billion integrated development in Taman Laksamana in Malacca but one of the company’s more unique business approaches is in rehabilitating abandoned properties.
It all started back in around 2017 when STI agreed to take over an abandoned project in Malacca that eventually became Metrasquare today. Despite initial sales for the property being strong, the previous developer went into financial difficulties in 2015 which resulted in work being delayed and the project eventually halted. The developer then offered Guaranteed Rental Return (GRR) to the purchasers but only managed to fulfil it for three months before defaulting. They had offered the purchasers a deal that was a little “too good to be true” to begin with, and was struggling to keep that promise.
STI at the time was only a marketing partner to the project. However, Dato’ Leong saw an opportunity for the company to assist in that situation, which led to Sheng Tai taking over the project in 2017.
The challenges of being a “White Knight”
In a cut-and-dry takeover deal, the previous developer should pay up the unpaid GRR to the purchasers before the new developer takes over. The new developer would then probably offer the purchasers a new GRR plan. The one thing that mostly never happens is the new developer assuming responsibility for the previous developer’s debts and promises, which was curiously what STI did.
STI did it, despite the obvious challenges in fulfilling those promises, “When we took over, it became clear that the previous developer – because they were not a public listed company, had not disclosed many things such as the auditor’s report and the magnitude of the debt,” shared Collin Tan, a Director of STI.
“The difference between the debt disclosed by the previous developer to the actual debt was more than ten times,” he said.
This situation involved more than 600 purchasers with a total debt amounting to close to RM20 million. Furthermore, there were 200 open court cases initiated by the purchasers who were unhappy at being required to pay their loan instalments without any rental income. STI had to attend to these court dates. “Between 2017 and 2018, we were attending court cases up to three times a week. There was one day where we went into court in the morning and only left late at night,” he added.
STI had to also slowly negotiate and discuss solutions with the other purchasers and contractors to get them on their side. “We realised that a lot of the dissatisfaction they had was with the previous developer and being unclear of what the solution would be,” shared Tan. “Dato’ Leong very patiently explained who STI was and that we were here to help and offer a solution to them. Eventually, we were able to slowly get them on our side.”
The importance of doing the right thing
Si, why bother to do this? Surely, there are easier, more straightforward ways to grow a business, “Our company sees it as a responsibility for us to play this role since we can,” shared Tan. While STI certainly has the resources to successfully revive an abandoned project, STI is also particular on how this should be done.
Arising from the promised GRR be wiped out and to start anew – STI founder Dato’ Leong was insistent that this was not something they should do. “Dato’ felt that while the debt to each purchaser may not seem like a huge amount to us – for these purchasers, it is their livelihood,” shared Tan. So instead, the company structured a proposal that enabled STI to repay what was owed to the purchasers over a period with interest given as well. This was accepted by the purchasers.
STI’s efforts to rehabilitate abandoned properties are not only appreciated by the purchasers for these developments but also by the local authorities, “Having a lot of abandoned projects would have devastating consequences to the health of the economy for the state and country,” shared Tan.
The happy ending
Metrasquare has become quite a success story for STI. When the company took over the project, it was like a ghost town. Today, the 6-acre site features the Metraquare serviced suites, a 3-star premium hotel called Metrasquare Hotel, a 5-star boutique business hotel AMES Hotel and soon-to-be-completed trade square and retail outlets. Not only that but both hotels have won numerous awards from both Agoda and Booking.com for the last three years – making the project turn around a bout of good news.
“When we first took over the project, many were critical of the decision because the project looked like it was dead,” shared Tan, “Now years on, the same people have actually complimented us for having the vision to see the potential in the development.“
Part of STI’s strategy in rehabilitating these projects lie in the company strength in international marketing. Furthermore, STI’s ability to promotethe group’s properties internationally has created strong demand from international clients and customers.
Since Metrasquare, STI has gone on to rehabilitate other abandoned properties such as the Regalia Beachfront Residence in Malacca. Collectively, STI’s decision to take over and rehabilitate these two developments has had positive impact to over 1,000 buyers of these properties.
Given all the challenges and difficulties that sometimes comes with such business ventures, is this something the company plans to do more in the future? “If the right opportunity comes along, we would certainly be open to it,” Tan said, “Our company can thrive in a business situation like this, so why not?” he concludes.