Port a place to harbour dreams

An increase in international export volumes last year has driven Napier Port's success.

A large and well-diversified portfolio of industrial and mixed-use land offering significant growth potential in commercial and industrial areas surrounding Napier Port in Hawkes Bay has come up for sale.

Marketed on behalf of Corunna Bay Holdings (CBHL) and Iron Pot Investments (IPIL) by Bruce Catley and John Bedford of CBRE, the properties in the 365,000sq m portfolio are being offered together or separately via a deadline private treaty campaign, with offers closing on November 12.

The CBHL and IPIL portfolio encompasses nearly 37ha of land subject to 33 ground leases in the Onekawa, Ahuriri, Napier South and Pandora suburbs that comprise the industrial and commercial areas surrounding Napier Port. Most of the land is zoned Industrial or Mixed Use under the recently released Napier District Plan, with one site zoned Fringe Commercial.

The properties are all subject to ground leases that include a right for the lessees to occupy the land in perpetuity with a mixture of seven and 21-year rent reviews.

Catley, managing director CBRE south Auckland, describes the Napier portfolio as "a once-in-a-generation opportunity", with the vendors having owned the assets for over 18 years.

The sales process offers the lessees the opportunity to buy the "freehold" or lessor's interest in the land and the offer has also been opened up to investors in the wider market who may be interested in purchasing them separately or as a portfolio.

"With a number of significant rent reviews due across the portfolio in the next five to six years, significant growth potential exists here for investors who understand the long-term secure nature of freehold land investment," Catley says. "Ground lease portfolios are known for their desirability and show excellent returns over time regardless of various property cycles. It will appeal to a wide range of investors looking for a passive income stream underpinned by freehold land in a region that is showing positive growth."

Bedford, CBRE's senior director metropolitan investments, says that the portfolio is well diversified from a tenant covenant perspective.

"With an average 8.8 years to the next reviews across the portfolio, the well-balanced rental review profile and mix of reviews presents investors with the opportunity to actively manage rental levels across market cycles," he says.

Catley says that the Onekawa industrial area is the closest of Napier's industrial areas to Hastings. "It has great access to the expressway and State Highway 2B. It is also close to the Napier CBD, Port of Napier and airport.

"Ahuriri offers an industrial and mixed-use activity area adjacent to the marine activities, motels restaurants, residences and offices and is closest to New Zealand's primary northeastern seaport. It has easy access to State Highway 2, the expressway, the airport and the Napier CBD. This high-growth area is seeing other non-industrial commercial activities which offer longer-term redevelopment prospects for some of the land. Alternative use and more intensive activity could see the land converted to freehold by the incumbent lessees.

"Pandora is another prime and established industrial area of Napier," Catley says. "Set in between the port and expressway to the airport, it has very good access via new roading systems to State Highway 2, which skirts the Pandora area. The infrastructure has supported recent redevelopments in the precinct for users like service industries, which have recognised the advantage of having a position between the port area and the expressway."

Catley adds that the Napier-Hastings urban area is the fifth-largest urban area in New Zealand by population, with 125,300 people and growing.

"Napier has seen good growth over the last year, with a 16 per cent increase in Napier Port's international export volumes handled over the year to March 2014 and an estimated 1.2 per cent real gross domestic product growth rate recorded by the city over the 2013 calendar year.

At the same time, total employment has increased an estimated 1.5 per cent."

Bedford says Napier Port's influence has been growing over recent years because of its position directly adjacent to New Zealand's main east coast international shipping lane.

"The port is now the North Island's second largest export port by tonnage volume and has New Zealand's fourth largest container terminal," he says.

"Forestry products, processed fruit and vegetables, growing apple exports and increased dairy and meat exports have all contributed to record tonnages being handled through the port year-on-year. In addition, the port enjoyed a record cruise season with 69 cruise ships last year."

Bedford says that by 2023, Napier Port's container terminal is expected to handle in excess of 300,000 "twenty-foot equivalents units" (TEUs) per annum. [A TEU is an estimated unit used in relation to cargo capacity of container ships and container terminals. The most common dimensions for a 20-foot (6.1m) long container are 8ft (2.44m) wide, and 8ft 6in (2.59m) high, for a volume of 1360 cubic ft (39sq m)].

"To service this growth, a $150 million investment programme is being undertaken by the port to fund plant replacement and infrastructure development over the next 10 years," Bedford says. "This includes dredging programmes to handle larger vessels, increasing export container storage berth-side, improving crane and vessel productivity, increasing rail capacity, upgrading the terminal operating system and commissioning two new cranes.

"With these plans in place, and the first half of the year seeing a boost in the Hawkes Bay economy, this portfolio opportunity could not come at a better time. Ground lessors' interests are arguably one of the best forms of property investment available and we consider this to be a first-class investment opportunity."