Demand for commercial and industrial property syndications rises
33 Broadway, in the Auckland suburb of Newmarket, has Mercury as its anchor tenant. Photo / Supplied
In an era of low interest rates, syndicated property investments are attracting record-high numbers of investors seeking access to the commercial and industrial property market, according to one of New Zealand’s top real estate agents.
The type of property ownership commonly known as “syndication” is a relatively simple and accessible way for both new and experienced investors to take part in the ownership of institutional-grade properties, becoming investment partners in multi-million dollar assets with strong fundamentals such as location and tenant covenants.
Bayleys sales agent Mike Houlker, says syndications open the way for investors to buy into either individual assets, or funds with multiple properties.
“Money from individual investors is pooled and the properties are managed on their behalf, with forecast returns distributed to investors at monthly intervals,” said Houlker, who received the Real Estate Institute of New Zealand’s awards for excellence commercial and industrial salesperson of the year.
“Many investors choose to buy into a range of properties in this way, potentially benefitting from diversification through assets in different locations, building types, and varied tenant profiles – all for a fraction of the up-front capital which would otherwise be required to achieve this through direct property investment.
“The low financial entry point for most offerings, typically starting at $10,000 to $50,000, draws a wide range of investors - from those with the minimum amount seeking returns well in excess of term deposit rates*, to those who invest millions of dollars as part of their overall investment strategy,” he said.
“Bayleys are very particular about the type and quality of the syndicated properties we market and only align ourselves with those with the same values. We are the sole selling agents for all of NZX-listed Augusta’s syndications.”
Mr Houlker said Augusta is one of New Zealand’s leading and largest property fund managers with around $1.8 billion in property under management. They are conservative in their views, with a strong focus on sustainability of the forecast return to investors and growing the value of the assets.
The long-standing relationship between the two companies has grown significantly over time, with Augusta’s first offering sold down by Bayleys in 2003, the Vertex Pacific building in Hamilton, raising $1.85 million of equity from investors. Since then, Bayleys has managed the sell-down of more than 60 syndications across Australasia. In recent times, the equity raise has exceeded $100 million for a multi-asset offering, and $250 million over a single year.
“Syndications often appeal to people motivated by the prospect of a hands-off investment, especially in a time of increasing residential property investment regulation,” said Mr Houlker.
“Although most syndicated investments have no fixed term Augusta as the manager will make recommendations on the best time to sell the property, and in most cases this will take place when a resolution is passed by at least 75 percent of the investors.”
Recent Augusta offerings available through Bayleys have included the new premium-grade, five green star office complexes in Auckland at 96 St Georges Bay Road in the city-fringe location of Parnell with Xero as the anchor tenant, and at 33 Broadway, in the suburb of Newmarket with Mercury as anchor tenant. Both investments offered a forecast pre-tax return of seven percent.
Mr Houlker said that in addition to single-asset syndications, investors were now also participating in investment funds where a portfolio of properties with similar attributes was at the core of the offering.
Last year, Augusta Industrial Fund Limited was established as an open-ended, unlisted property fund. Its purpose is to provide investors with the opportunity to invest in a portfolio of strategically selected assets all within the strongly performing industrial sector.
Initially consisting of four properties, the original $75 million share offer in 2018 was oversubscribed with many investors missing out. By early this year these original assets grew in value from $114.07 to $121.64 million and in March a further five assets purchased for $173.82 million were added to the portfolio through a $115 million equity raise which was again oversubscribed, highlighting continued strong investor interest.
The 47 tenants across three cities provided 99 percent occupancy at the time of the offer. These included global and multinational names such as Toll, Downer, Linfox, Fujitsu and Fletcher Steel along with well-known national tenants such as Macpac, Pacific Steel and Icepak (Hall’s Group).
- Investors should consider the difference in risks between managed property funds and banks.