The NZ Super Fund is taking the plunge into tourism, investing into a $300 million hotel portfolio which includes two properties in Auckland and one in Christchurch, with the intention of buying others.
The phased investment - which the fund is not putting a specific figure on - includes the Four Points by Sheraton and Adina Auckland Britomart in Auckland, the BreakFree Hotel in Christchurch and comes as the rate of international visitor growth levels off.
The fund, established by the Russell Group and Lockwood Property Group, creates a platform for further investment in New Zealand's tourism sector.
NZ Super Fund's head of direct investments, Will Goodwin, says the partnership would give the fund exposure to the fast-growing tourism sector, diversify its investment portfolio and help support the industry's strategic objectives.
"New Zealand needs additional hotel accommodation to support both growing domestic tourism and international arrivals. There are clear capacity constraints in this sector and we look forward to working with our partners to identify opportunities for future growth," said Goodwin.
Tourism is New Zealand's largest export industry in terms of foreign exchange earnings and directly employs one in seven New Zealanders.
Total annual tourism expenditure for the year ending March 2018 was $39.1 billion, an increase of 7.7 per cent ($2.8b) from the previous year. That includes both international and domestic tourism.
Despite this growth, New Zealand is projected to have a significant shortfall in hotel rooms, with more than 4500 extra beds needed by 2025. Auckland faces the biggest constraint, with a requirement of up to 4300 new hotel rooms but only 2500 projected to be built.
Goodwin said the fund invested for the long term and took into account cycles, such as the current drop off in the rate of tourism growth. Established hotel chains had also co-existed with alternative accommodation providers such as Airbnb, he said.
Russell Group managing director Brett Russell said the group was excited to partner with the NZ Super Fund and it was pleased that these assets remain in local ownership.
Lockwood Property Group's Steve Lockwood said the significant opportunity for future growth in the sector was a major motivation for the deal.
"The partnership provides a unique set of skills which will enable us to capitalise on the opportunities which become available in this sector throughout metropolitan and provincial New Zealand.''
Under the arrangement, two joint ventures have been created, one to own properties operating as hotels and the other to manage properties and identify future opportunities.
The $42b NZ Super Fund has significant stakes in Kaingaroa Timberlands, Datacom, Kiwibank, Fidelity Life and NZ Gourmet, as well as significant investment in a range of locally listed companies.
The Russell Group of Companies is one of New Zealand's largest privately owned and operated construction and property organisations with entities including Russell Property Group ("RPG") and Dominion Constructors.
Through its property arm, Russell Property Group, the firm has an established track record in the development and ownership of hotels, having undertaken the conversion and construction of the Four Points by Sheraton and Adina Auckland Britomart as well as the BreakFree Christchurch. The QT Auckland is the group's latest project, due to open in 2020.
Dominion Constructors is one of the largest commercial construction companies in New Zealand and has been involved in building many hotels for their clients over the past 45 years.
The Lockwood Group is a private investment group owned by Steve Lockwood, who was one of the three founders and major shareholder of the Crombie Lockwood Group, which from 1983 grew into New Zealand's largest independent commercial insurance broking business.
The founders sold the business to Wesfarmers Limited (ASX listed company) in 2007, which then on-sold the company to Arthur J. Gallagher & Company, the fourth largest NYSE listed global insurance broking and risk advisory business in 2014.
Lockwood continues as managing director of the wider Arthur J Gallagher Australian and New Zealand businesses and is a long-standing investment partner of the Russell Group of Companies.