The balance of a large Auckland CBD office and retail property, in which media organization NZME is the largest tenant, on the corner of Victoria St and Graham St, is to be syndicated by Augusta Funds Management Limited following its successful syndication of Building A in the complex.
Augusta is now offering 1050 investment units of $50,000 each in a limited partnership (LP) that will own the remainder of the property.
Building B, a 7147sq m office building, has substantial frontage and signage exposure to Victoria St West and is connected to Building A on Graham St by a large central atrium.
The offering also encompasses a smaller retail building, Building C. This building, along with part of the ground floor of Building B, is occupied by a number of service retailers like food and beverage outlets and hairdressers which draw much of their business from the more than 1500 people working in the two office buildings.
The latest offering has an initial forecast pre-tax cash return of 7 per cent per annum, increasing to 7.25 per cent for the year ending March 31, 2019, to 7.5 per cent for the following year and to 7.75 per cent for the year ending March 31, 2021.
The Product Disclosure Statement makes it clear that forecast figures are not guaranteed and the actual distribution may vary. However, Augusta managing director Mark Francis says the forecast increases are based on fixed rental increases across all of the leases, as well as a fixed interest rate for four years from April 1, 2017, on a bank loan that will part fund the acquisition of the property. A capital expenditure and defects warranty from the vendor Mansons TCLM also means Mansons will generally be responsible for repairing any building defects until March 2026.
Francis says the strong response to the Building A syndication, which attracted $70 million of investors' equity, prompted the decision to bring the remainder of the property to the market as well.
"There was huge investor interest in that opportunity, with higher demand than the number of units available resulting in the offer being oversubscribeddespite it being by far and away the biggest syndication we have ever undertaken. We believe there remains unfulfilled investor demand for this type of quality product which is hard to find in the New Zealand market, particularly for smaller investors."
Mike Houlker, head of Bayleys' Investment Products and Syndications Division which is marketing the offering, says it shares many of the attributes that generated such high interest in Building A.
"It's a premium-grade investment property, providing a significantly better return than the current very low bank deposit rates, from a number of recently signed long-term leases to a mix of very substantial corporate tenants."
The property has a weighted average lease term (WALT) of 11.22 years by income. NZME Limited, one of New Zealand's largest media originations, has a 15-year lease over about one third of Building B with two six-year rights of renewal. NZME operates a wide range of print, radio and online media businesses including The New Zealand Herald, Newstalk ZB and GrabOne and its currently seeking the necessary approvals to merge its business with the New Zealand operations of Fairfax Media.
Meredith Connell, Crown Solicitors for Auckland (excluding Manukau) occupies the top floor of the building on a 12-year lease with a six-year right of renewal. Both the law firm and NZME occupy the same levels in Building A which are connected by suspended walk bridges across the glazed central atrium.
The other two office floors in Building B are occupied by Maersk, the world's largest container shipping operator, and Kotahi, a logistics and distribution joint venture between Fonterra and Silver Fern Farms. These two tenants are on new nine-year leases.
Houlker says investors will benefit from significant built in rental growth across these office leases. They all have fixed annual rental increases of 3 per cent per annum starting at the beginning of the third year of the lease to NZME and at the second year of leases to other tenants.
"Investors will also own a share of a five green star rated property that has won the Supreme Award for the best new development in the Property Council New Zealand Rider Levett Bucknall Property Industry Awards for 2016," says Houlker.
Chief awards' judge John Dunn described the building as "an outstanding" property development. "High levels of sustainability were incorporated into the design and exemplary tenant usability and satisfaction have been achieved. In addition, innovative structuring created the ability to subdivide the development while ensuring coordinated ongoing maintenance and management," Dunn said.
Houlker says the quality of the development has also been reflected in the rapid tenant take-up of space. The last remaining office floor, in Building A, has recently been leased by BDO which also has naming rights over the entire complex which will now be known as the BDO Centre.
Bayleys' syndicated investment manager, Samara Phillips, says the property is also strongly located in the growing Victoria Quarter CBD precinct. "This precinct has undergone considerable commercial development over the past few years led by Mansons' construction of a number of low to mid-rise campus style buildings, such as the Spark head office complex located directly across the road from the BDO Centre.
"The precinct will get a further boost from the convention centre development which is underway only a block away while there is also considerable commercial and residential development underway along nearby Sale St."
The LP investment scheme which will own Buildings B & C will be overseen by Covenant Trustees Services Limited as supervisor. Augusta Funds Management will be responsible for the establishment, administration and management of the limited partnership, the preparation of annual financial statements and the payment of monthly income distributions.
Augusta Funds Management is a wholly-owned subsidiary of NZX listed Augusta Capital Limited and has in excess of $1.5 billion of assets under management on behalf of around 4000 investors and encompassing over 150 commercial and industrial premises in New Zealand and Australia.
A copy of the Product Disclosure Statement can be found on www.premiumaucklandproperty.co.nz