In one of the biggest property syndications in New Zealand, Augusta Funds Management is starting a proportionate ownership scheme centred on Building C in Telecom Place in downtown Auckland.
The five-star green-rated building at 167-191 Victoria St West occupies a high-profile corner position in the western fringe of the Auckland CBD close to Victoria Park and the waterfront Wynyard Quarter.
The scheme calls for minimum investments of $50,000 a share for 780 proportionate shares in the recently constructed office and retail complex that is leased to Telecom New Zealand with a projected annual 8 per cent cash return to subscribers.
"The investment is for a proportional share in an award-winning premium grade office building," said Mike Houlker of Bayleys Auckland who, with colleagues Samara Phillips and Sarah Phillips, is marketing the syndication with a deadline for share applications of 5 pm on September 10.
"It comprises a single property asset leased to a single tenant."
The scheme will enable the purchase of Building C for $65,186,117, drawing on a 36-month debt facility from ASB Bank with the balance coming from subscribers.
Building C was valued at $67 million plus GST at June 27 this year by Dave Wigmore and Jonathan Verbiest of Jones Lang LaSalle.
Augusta Funds Management is a wholly owned subsidiary of Augusta Capital, an NZX listed company with a market capitalisation of around $73 million.
Augusta Capital, as the parent company, and Cypress Capital have agreed to underwrite the offer - Augusta for $25 million or 500 proportionate shares, and Cypress for $14 million or 280 proportionate shares.
The building also has a capital expenditure and defects warranty for the next 10 years from owner and builder Mansons TCLM.
Mark Francis, managing director of Augusta Funds Management, says his company started out with one industrial property in Hamilton in 2001 and now owns or manages more than 170 properties worth about $1.2 billion.
"Over the past 13 years we have acquired assets all across New Zealand and across all sectors, forming a very clear view of what constitutes a quality property investment," he said.
"We see all those ingredients in Building C, Telecom Place. This is one of the best assets we have ever offered. It's a genuine institutional investment grade property that is rarely available for direct investment."
Under the syndication scheme each subscriber will acquire a beneficial interest in Building C with its car parking and storage areas.
It is one of four buildings forming part of the premium grade campus-styled office complex that was built by Mansons TCLM and completed in 2010. Three of the buildings in the development are leased by Telecom; Television New Zealand leases the fourth building.
Within the complex is a communal plaza with cafes and eateries serving employees and the public.
Houlker said the development had five-star office design and five-star office built certifications from the New Zealand Green Building Council.
"It also received the Hays commercial property industry award for excellence at the Rider Levett Bucknall Property Awards in 2011."
The total lettable area of Building C is 7495.3sq m. It also has storage areas and 73 car park bays. It contains floor plates of about 953 sq m to 1361 sq m and has good levels of natural light.
"Building C is expected to achieve an A-plus seismic strength rating over 100 per cent of new building standard," Houlker said.
The total annual rent to be paid by Telecom at October 1 is $4,725,991 plus GST, increasing a month later to $4,867,020.92 a year. The rent is made up of office leasing of $4,463,947.31 plus GST and outgoings, car park leasing of $378,073.61 plus GST and naming and signage rights of $25,000 plus GST.
Phillips said annual rental growth would be through fixed annual 3 per cent rent increases for the first 10 years of the lease. Telecom subleases ground floor retail areas to a Subway and Victoria Sushi.
The linked office and car park leases started on November 1, 2010 for a term of 13 years and seven months. The current term expires on May 31, 2024, with two rights of renewal of six years each remaining.
"The leases have about nine years and eight months remaining from the expected settlement date of October 1 this year," Phillips said.
"This provides for a total potential remaining lease term of about 21 years and eight months if both rights of renewal are exercised."
The syndication scheme had no fixed term for Building C to be sold, and the scheme would be wound up only by the passing of an extraordinary resolution by not less than 75 per cent of the subscribers.
The Covenant Trust Company had been appointed statutory supervisor of the scheme.
Phillips said share purchasers would have to complete an application form that would be in an investment statement made available to them with the prospectus, and send it to the offices of law firm Chapman Tripp.
"No shares will be issued to anyone who does not complete and sign an application form," she said.
The western fringe between Victoria Park and central city has seen a substantial amount of office development, with most of the activity being focused on Fanshawe St to the north of Building C.
"This development activity has attracted big corporations requiring large floor plates in low to mid-rise buildings," Phillips said. "They include Air New Zealand, Vodafone, KPMG, Hewlett Packard, Microsoft, NZI, Oracle and Kiwibank.
"Attractions of the area for employers and employees are the shopping and entertainment centres in the CBD, while nearby Viaduct Harbour and Victoria Park Market have numerous bars and restaurants."
New office and retail developments in the area include Mansons' 20,000sq m building under construction at 151 Victoria St West and 50,000sq m of Wynyard Quarter development by Fletcher Building and Goodman Property on Fanshawe St that will include Fonterra's new 12,000sq m head office.
Bayleys' national research manager, Gerald Rundle, said the location of office premises would remain a significant consideration for businesses when making leasing decisions, and the Wyndham Quarter, Viaduct and Victoria Park precincts were clearly favoured locations.
"Northern migration of tenants already in the CBD, towards the waterfront, is an ongoing trend that will become more and more emphasised as development of vacant lots, particularly in the Wynyard Quarter, progresses," he said.
"Improvements in occupancy will remain focused on the prime sector of the office market, particularly as new developments continue to come on stream, lifting the standard of office accommodation."
Development at the northern end of the CBD meant that more than 80 per cent of the area's prime grade office space was in the northern precincts near the Telecom Place complex.
"This split is likely to become wider as development of good quality office space continues to be focused on this area of the city."
Auckland's growth was being fed by business's growing economic confidence and optimism.
"Associated business growth will continue to see increased demand for business premises including office space in Auckland's central business district.
"Overall vacancy continues to decline and, for the first time since the 2012 mid-year survey, the reduction in vacancy wasn't reserved for just the prime end of the market.
"The secondary office market also had a declining vacancy rate, although it remains above the long- term average level of vacancy."
Auckland was also benefiting from the migration of businesses from other cities, Rundle said.
"Over the past three years, Westpac, ASB and BNZ have consolidated their space requirements and moved into head offices in Auckland's CBD.
"Prime grade vacancy was at 6.9 per cent in the January office vacancy survey. Market comment suggests that any significant floor areas in premium buildings are almost non-existent and quickly drying up in A grade buildings as well.
"With the superior end of the office sector tightening up, we can expect to see more cranes gracing our skylines."