Commercial property developers are selling assets to pay down debilitating debt as it gets more expensive to service. Video \ Carson Bluck | Cameron Pitney
Rising debt costs and shrinking valuations are forcing major commercial property developers to sell millions of dollars worth of assets.
Precinct Properties has sold about $700m worth in the past 18 months, while hospital developer Vital Healthcare has sold $220m worth and Argosy just sold $20m worth.
“When interest ratesrevert as fast as they have, and when values come down, and we’ve seen in our business probably 7 or 8 per cent reduction in values, then you’ve got to stay in front of it,” Precinct CEO Scott Pritchard told Markets with Madison.
“We’ve been managing our levels of debt through asset sales and through capital partnerships and through raising new capital.”
The largest listed office developer and owner had drawn down $1.1 billion worth of debt, paying an average interest rate of 5.3 per cent - surprisingly less than most mortgagors.
That’s because it didn’t just rely on banks for funding. Precinct was now partnering with offshore investors including Singapore sovereign wealth funds, private equity firms and high net worth individuals.
“The key is to have a really diverse source of funds and to have a really laddered maturity profile, which is all the lessons that a lot of businesses learned out of the GFC to be honest.
“If we get other sources of capital to invest alongside us, it means we can do more things and ultimately drive a higher return for our shareholders.”
Precinct's latest development, One Queen on Auckland's waterfront, features a 21-storey building with a five-star hotel. Photo / Precinct Properties
It was a strategy Vital was now considering too - seemingly a potential funding solution in a higher interest rate environment.
Pritchard said offshore investors were especially keen on residential property, which was driving Precinct’s push into developing apartments on Auckland’s waterfront.
But would that impact Precinct’s future net rental income, currently earned on offices?
Watch Scott Pritchard discuss how developers are managing debt in today’s episode of Markets with Madison above.
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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
