Steady tenancies ideal portfolio add on

By Colin Taylor

The backpackers is centrally situated at 1189-1193 Fenton St, Rotorua.
The backpackers is centrally situated at 1189-1193 Fenton St, Rotorua.

The auction of four Rotorua commercial properties owned by the same mortgagor offers wide-ranging opportunities to buyers wanting to expand their portfolio with long-term tenancies and steady market yields.

Three of the properties are in Fenton St at numbers 1189 to 1193, 1241, and 1211 to 1217. The fourth is at 72 Malfroy Rd.

They will go under the hammer at 1pm on October 24 at the Millennium Hotel in Rotorua.

Paul Sanford, of NAI Harcourts in Rotorua, says four properties are tenanted with only the property at 1211-1217 Fenton St having two vacancies out of the four tenancies.

"The properties represent a range of commercial opportunities from the first-time commercial buyer to an add-value investor and investors looking for long-term tenants and market yields," Sanford says.

The property at 1189-1193 Fenton St, with a site area of 440sq m, is a two-storey with a retail tenant on the ground floor and a 65-bed backpackers' lodge on the first floor.

The backpackers' operation is subject to an 18-year lease which started on November 1, 2012 and the tenant is responsible for a proportionate share of all outgoings. For the ground-floor outlet a 15-year lease began in 2004, with the tenant again responsible for outgoings.

"The building at 1189-1193 Fenton St occupies a corner section located towards the fringe of the central business district and has a high profile because it is directly opposite Rotorua's tourism centre and the convention centre," Sanford says. "This property represents a solid investment worth adding to any portfolio."

All titles are held under the same ownership.

The second property, of 331sq m at 1211-1217 Fenton St, is a two-storey building constructed in two stages. The front half was built in 1964 and the rear half was added in 1987.

"The surrounding area is rather mixed and includes restaurants, backpackers, the tourism centre, convention centre and the Rotorua police station," Sanford says.

"At present there are two tenants on the ground floor of this building - a Turkish restaurant and a dairy. The middle ground floor shop is untenanted as is the total upstairs area.

"There is little information on the leases or payment of operating expenses."

The tenancies have been in force for nine and 13 years and it would appear that work will be needed to be undertaken to the building to bring it up to a level to lease the other two spaces out.

"This represents an investment with an opportunity to add value," Sanford says.

The third property at 1241 Fenton St is a retail outlet in a single-storey building constructed in 1984. It encompasses a range of shops, each with individual unit entitlements.

"The shop complex, called the Bent Cross Centre, has a high profile position in Fenton St, mainly associated with the tourism industry," Sanford says.

The retail unit for sale has a lettable area of 95sq m, which includes the retail shop toilet and shared facilities. The present tenant, a souvenir retail shop that has been there since 2005, with a 10-year lease. The outgoings are managed by body corporate and the property is described as a stratum estate in freehold.

"This property represents an entry-level opportunity into the commercial market for a first-time investor," Sanford says.

The fourth property, at 72 Malfroy Rd, is an older-style hall together with a meeting room and facilities that encompass an area of 400sq m. The land area is 822sq m with a zoning designation of Church with an underlying zoning of Reserve B.

The building has been occupied since 2006 by the Victory Church, which leases it on a monthly basis. A list of chattels is owned by the landlord.

The site is within Rotorua's built-up central suburbs and surrounding development is generally residential with schools and the central business district within a short walk.

"This property also represents an entry-level investment and also offers development potential," says Sanford.

"It needs to be clear that prospective purchasers will need to do their own due diligence in relation to the leases and the condition of the four mortgagee properties."

Sanford says the rise in GST together with the Christchurch earthquakes in 2010 and 2011 led to a decline in confidence in Rotorua, and a low risk attitude from most investors.

"The current low interest rate environment has investors looking for alternatives in terms of returns on their investments and the Rotorua market in 2012 and 2013 has seen a definite investor return to the local commercial market.

"Rotorua has seen a number of commercial development projects either under way or completed during the 2012 to 2013 period. Sales evidence in the central business district indicates yields from 7.27 per cent to 9.61 per cent on tenanted investments.

"The newly built Redwood Centre development has recorded yields of 6.51 per cent to 8 per cent on seven sold properties which were all held under strata titles. These sales have all been completed in 2013 with new tenancies in suburban Rotorua.

The rental market in Rotorua pertaining to the Fenton St area in which three of these mortgagee properties for sale are located has varied from $250 to $408 a square metre.

- NZ Herald

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