Augusta Funds Management Ltd is breaking new ground by syndicating a new head office building for Mercury Energy Ltd in Newmarket while it is still under construction.
"This signals a key strategic step for Augusta as we move from being a buyer - not just of quality completed buildings - but into the funding and development of those property assets as well," says Mark Francis, Augusta's managing director.
The NZX listed company has unconditionally agreed to purchase the 3090sq m site at 33 Broadway on which a two-building complex is being developed by Mansons Broadway Ltd for $141,611,878.
Augusta Funds Management Ltd will seek to raise $83.5 million of investors' equity to facilitate the acquisition by offering1670 interests of $50,000 each in the 33 Broadway Trust that will own the property.
Mike Houlker, Samara Phillips and Sarah Prebble, of Bayleys Investment Products and Syndications division, are the sole selling agents for the syndication offer which closes on June 19.
The trust is forecast to provide investors with an initial forecast 7 per cent pre-tax return until March 2020, paid from settlement of the sale occurring when earthworks and piling have been completed - expected by the end of June 2017.
Earthworks began last September on the development which is scheduled for completion by the end of 2018 with tenants moving in during the first quarter of 2019.
Houlker says that, during this development phase, Mansons Broadway Ltd will pay interest on investors' equity as well as covering the trust's bank interest costs.
"The developer will effectively fund initial investor returns until building completion when the rental income from the property's long-term tenancies will kick in. All of the leases will have built in rental growth of three per cent per annum."
The property will encompass 13,103sq m of net lettable space over six levels in two adjoining buildings (east and west) separated by a large enclosed central atrium.
The majority Government owned energy company Mercury NZ Ltd, also listed on the New Zealand and Australian stock exchanges, intends to consolidate its four Auckland offices into the Five-Green star complex over which it has naming rights.
Mercury will occupy Level 2 of the east building and Levels 3, 4 and 5 of both the west and east buildings, leasing a net rentable area of 7845sq m, on a 12-year lease with two six-year rights of renewal.
The other office tenant signed so far is New Zealand's largest poultry producer, Tegel Foods Limited, which will lease Level 1 of the east and west buildings comprising 2283sq m of office space on a 10-year lease.
Houlker says these two tenants will occupy 77 per cent of the property's lettable area.
Mansons Broadway will provide a nine-year rental underwrite, backed by a bank bond, on any space that remains unleased at practical completion of the development. Both Mercury and Tegel have options to lease further space prior to completion.
"If completion of the development is not achieved by certain dates, Mercury and Tegel do have the option to cancel their leases. However, in this case, Mansons Broadway will underwrite that additional vacant space also. The progress of development will see the likely start date of leases as February 2019, providing a buffer which is currently 12 months before the cancellation options can be actioned."
The site is now being extensively excavated to provide basement car parking for 158 vehicles, a secure bike park room along with shower and toilet facilities plus storage and ancillary areas over two underground levels.
The ground floor will contain both office and retail premises with a further five levels of office accommodation above. The office premises comprise about 12,700sq m of net lettable space with close to 403sq m of retail space fronting onto Broadway, Newmarket's main retail strip.
Phillips says the complex is being benchmarked to Mansons' mostly recently completed office complex, the BDO Centre in central Auckland which won the Supreme Award for the best new development in the Property Council New Zealand's Rider Levett Bucknall Property Industry Awards for 2016.
"The premium grade office accommodation in the Mercury building will be of a similar award-winning level of quality with large floor areas totalling over 2200 sqm across the east and west buildings connected by air bridges running through an impressive glass entrance atrium. Natural light will be provided from the glazed exterior walls as well as from the central atrium which has full height wall and roof glazing."
Phillips says Mansons is obligated to design and complete the complex so that it has Five Green Star 'Design' and 'Built' ratings, with this being one of a number of conditions required to be satisfied for release of a final retention payment to the developer.
Phillips says Mansons have built more certified green star buildings than any other developer in New Zealand. The family business was founded in the 1970s with completed developments totalling $1.16 billion since 1999.
This is the fourth recent Augusta offering of a Mansons development and follows the syndication of one of the buildings in Spark's head office campus and two buildings in the BDO Centre (which also serves as NZME's headquarters), both located on Victoria Street West in Auckland's CBD.
Houlker says Mansons will carry out a subdivision of 33 Broadway at its own cost, to enable separate titles to be issued for each building (east and west) with an associated proportionate share in the common areas like the atrium. This should provide future liquidity options to sell one of the titles.
It is also intended the trust will register to be a multi-rate portfolio investment entity (PIE). The amount of tax paid will be based on a subscriber's prescribed investor rate (PIR) up to a maximum of 28 per cent.
Francis says Augusta recognises the investment offering is different from previous syndications in that it involves a property that is under development rather than already built and occupied.
"We are conservative in our approach and committed to only offering high quality properties to our investors. With assets of this calibre difficult to find in the current market, our business model has evolved to be a part of the creation of these assets as well.
"The development agreement between Augusta and Mansons has been set up to mitigate risk to investors. It contains guarantees from Mansons' Equity Limited, along with structured retentions and buy-back clauses. Mansons also stands behind its work and provides a 10-year expenditure and defects warranty - meaning it will generally be responsible for repairing any building defects."
Prebble says the property is well positioned on a high-profile roundabout across the road from the Newmarket Olympic pool. It is also about 800m from the Newmarket railway station and has good access to bus services and the southern motorway section of State Highway 1.
"Newmarket is one of Auckland's premier retail and entertainment districts. It is also home to an increasing number of office buildings which have attracted high profile companies like Fuji Xerox, Vector, 2degrees, Watercare, Fidelity Life, Heartland, UDC, Metlifecare, Tonkin & Taylor and the ANZ Regional Centre - along with the new University of Auckland campus."
The 33 Broadway Trust offering will be fully underwritten, with Augusta Capital underwriting $33.5 million and other parties the balance of the capital raising.
Augusta Funds Management is a wholly-owned subsidiary of NZX listed Augusta Capital Limited and has in excess of NZ$1.6 billion of assets under management on behalf of more than 4000 investors, vested in over 150 commercial and industrial premises in New Zealand and Australia.
Applications for one or more of the $50,000 units in the 33 Broadway Trust can only be made via a Product Disclosure Statement available from Bayleys or by visiting the website www.33broadway.co.nz
Details on how the forecast pre-tax return is calculated and the risks associated with the investment can be found in the Product Disclosure Statement.