BDO Centre buildings syndication tops $50m

2:00 PM Monday December 19, 2016 True Commercial

NZME is the largest tenant in one of the high profile buildings successfully syndicated.

A total of 1050 $50,000 investment units have been sold in the syndication of Buildings B and C in the BDO Centre in Auckland’s CBD, taking the total amount of investors’ equity raised in Augusta Funds Management offerings in the past 12 months to over $250 million.

The syndication of the buildings on Victoria, Hardinge and Graham streets closed fully subscribed last week, raising $52.5m in equity.

This followed the syndication of Building A in the BDO Centre, which closed in August and attracted $70m in equity.

Bayleys Investment Products and Syndications division sold a total of 2450 $50,000 investment units in the two limited partnerships which will each own separate buildings in the centre in which NZME, publisher of the the New Zealand Herald, is the largest tenant.

NZME operates a wide range of print, radio and online media businesses from the property which won the Supreme Award for the best new development in the Property Council New Zealand Rider Levett Bucknall Property Industry Awards for 2016.

The second syndication involved a 7147sq m office building (Building B) which has substantial frontage and signage exposure to Victoria St West and is connected to Building A on Graham St by a large central atrium.

It also encompassed a smaller retail building (Building C) which, along with part of the ground floor of Building B, is occupied by service retailers who draw much of their business from the more than 1500 people working in the two office buildings.

Augusta managing director Mark Francis says there was big investor interest in both offerings. “There was higher demand than the number of units available, which is indicative of unfulfilled investor demand for premium-grade investment property with long-term leases to a mix of very substantial corporate tenants.”

Other tenants in the BDO Centre include Meredith Connell, BDO which has naming rights; Maersk, the world’s largest container shipping operator; Kotahi, a logistics and distribution joint venture between Fonterra and Silver Fern Farms and multinational Pernod Ricard.

All office leases 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.

The forecast pre-tax returns for the second syndication are projected to start at 7 per cent per annum and increase to 7.75 per cent in the year to March 2021.

Mike Houlker, head of Bayleys investment products and syndications division, says a significant feature of both BDO Centre syndications was widespread of investor interest from around the country.

“Despite this being an Auckland property, around a quarter of the units were sold to Aucklanders, with close to 50 per cent of sales being to investors from other parts of the North Island and just over 20 per cent to South Island investors.

“This follows a similar pattern to other recent syndications of large Auckland properties such as the Southgate Retail Centre and Spark City, with the proportion of South Island investors continuing to grow. For this reason, we undertake investor presentations around the country on all the public offerings we market with around 50 undertaken in the last 12 months from Queenstown to Kerikeri.”

The BDO Centre offerings are the latest in a line of successful syndications promoted by Augusta Funds Management Limited and marketed by Bayleys since November last year. Other public syndications have included a new Countdown Supermarket in Hamilton and Countdown’s South Island distribution centre in Christchurch, two industrial properties in Queensland and the re-syndication of an industrial property in Penrose.

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The BDO Centre buildings on Victoria, Hardinge and Graham Streets are connected by a central atrium.

A new product offering, the Value-Add Fund No 1, was also launched offering wholesale investors a share in five Auckland commercial and industrial properties with potential add value opportunities.

Bayleys’ syndicated investment manager Samara Phillips says a significant proportion of investors have purchased interests in more than one property syndication, benefiting from the diversification available through the wide range of opportunities Augusta offer.

“Investors can create their own diversified property portfolio across a variety of industrial, commercial and retail offerings in different locations around New Zealand and Australia. Obviously they can do this for a much lower capital outlay than via direct property investments which is why syndications are so popular.”

Houlker says concerns expressed about the liquidity of investment units have also been noted and addressed with both Bayleys and Augusta establishing active secondary markets for the on-sale of units, with a total of 193 investment units on-sold since 2014, totalling about $11.69m.

“Commercial property investments should generally be undertaken with a long-term perspective but where circumstances change we can act as sales facilitators, if required. In the past two financial years, about 95 per cent of secondary sales have settled within one month of coming to market, many receiving offers acceptable to the vendor within hours of being listed. A substantial number of these sales have been to other syndicate investors on our large combined databases of about 7500 clients, which has been built up over more than 15 years’ involvement in this sector of the market.”

The most recent on-sales undertaken this year range from $50,500 for a unit in the Countdown supermarket in Huntly to $67,500 for a unit in the ENZA industrial complex in Hastings, both syndicated in 2011. Units in more recent Augusta syndications of the Southgate Retail Centre (2015) and Spark City (2014) have sold for $57,000 and $58,000 respectively.

However, as with all investments, past performance is not always indicative of future performance, says Houlker, and on-sale prices will vary depending on what stage the property cycle is at and the particular characteristics of each syndication.

Mark Francis says Augusta will also make recommendations to investors on when is the best time to sell a property. Two examples in the last 12 months have been the sale of the ASB call centre building at 360 Dominion Rd and 33-43 Hugo Johnston Drive, Penrose.

“The sale of the ASB property provided 180 investors with a very satisfying 18.17 per cent internal rate of return, turning their $50,000 invested per unit into $73,592 per unit in less than four years, while also delivering a running 9 per cent annual cash return.

"This was a very pleasing result for all involved underlying the importance of quality management of assets to deliver outcomes and choosing the right time to sell — with the current very strong market offering good opportunities to do that.”

The Hugo Johnston Drive sale involved the re-syndication in March of an existing syndication managed by Augusta which raised $17m in equity. A significant redevelopment of the industrial property was agreed with the tenant Oji Fibre Solutions (NZ) Limited (previously known as Carter Holt Harvey Pulp & Paper).

The new offer was made to fund the development and the tenant agreed to a new 15-year lease term, with two rights of renewal of 10 years each. Francis says existing investors received approximately $59,000 for each $50,000 unit acquired when the property was originally syndicated in April 2013. He says a large number of original investors also reinvested in the second offering.

Augusta Funds Management is a wholly-owned subsidiary of NZX listed Augusta Capital Limited and has about NZ1.6 billion of commercial and industrial property under management in New Zealand and Australia.

Augusta executive director Bryce Barnett says in reviewing its products moving forward, Augusta Funds Management is focusing on the sustainability of returns over the long term and growing the value of a property.

“Even though it is not always possible to completely control the income flow, Augusta’s team uses its knowledge and skills to ensure that the right product is chosen and the right financing structures are put in place.

“Augusta is taking a prudent approach in having a lower Loan To Value (LVR) borrowing level on more recent property offerings, which in effect reduces the gearing advantage between rental returns and interest rates, and in ensuring the fixing of interest rates as long as possible. This is supporting longevity of an investment through various economic cycles that we may experience as well as reducing overall investment risk,” says Barnett.