New vulture fund circles Auckland office blocks

A new vulture fund wants to raise up to $50 million to buy bargain-basement office blocks.

Blacksmith Property Fund's prospectus was registered this month to issue shares and raise money.

The fund may not make payments initially, but when returns do kick in, annual interest of 12 per cent is forecast.

Vulture funds - common in the United States and Europe - are designed to take advantage of distressed sellers and pick up bargains in difficult economic times.

Three industry experts are behind the fund. Blacksmith directors are Peter Wall, former chief executive of the listed AmTrust Pacific and former Brookfield Multiplex New Zealand managing director, Bryce Barnett, founder and manager of syndicator KCL Property Group, and Jack Porus, managing partner of lawyers Glaister Ennor.

Minimum deposits of $25,000 are being sought aiming to raise an initial $25 million, with the ability to accept up to $50 million.

Jones Lang LaSalle, property brokers and consultants, have found that nearly a fifth of Auckland's office stock could be empty in the next three years and already 13 per cent of the CBD floorspace is empty. Wall said these conditions positioned the fund well. The global financial crisis, increasing numbers of distressed vendors, a rising tide of finance companies forced to sell properties, tightening financial conditions and purchaser shortage were some of the reasons behind the fund.

These factors had combined to produce a "unique window of opportunity for counter-cyclical property investors", Wall said.

Target properties had been identified but not declared yet.

But he referred to a number of Auckland office towers which the fund could be interested in because they needed capital investment to bring in better returns. The fund has forecast 12 per cent annual returns but not immediately. Money raised will be used to buy a property, possibly re-tenant it and do it up, then pay investors the returns when the income stream is stable.

The fund is said to be aimed at risk-takers who believe the market will improve soon.

"The fund will enable shareholders to benefit from any profit of the fund derived from rental income and capital appreciation as the value of the properties purchased are restored when the property market recovers and yields decrease as is anticipated by the board," the prospectus says.

The fund will gear up its properties, borrowing up to a maximum of 45 per cent and pay the manager a base fee of 0.75 per cent.

When shareholders are paid will depend on how the fund's properties perform.

Wall said there was no intention of listing the fund on the NZX but investors could expect the board to eventually sell the properties and return capital to them.

Zoltan Moricz of CB Richard Ellis in Auckland said he expects industrial property to lead the recovery, followed by retail and then offices.

"But that's not to say there can't be good properties available in the office market where the property itself is right with strong tenants on medium-term leases," he said.

BLACKSMITH PROPERTY FUND

* Aims to buy office blocks at low prices.
* Minimum deposits of $25,000 sought to raise an initial $25 million, with the ability to accept up to $50 million.
* Prospectus was registered on February 11.
* Share offer closes April 14.