Augusta Funds Management Ltd is breaking new ground with its latest syndication of Mercury’s new head office building in Newmarket while it is still under construction.
Augusta Funds Management Ltd is breaking new ground with its latest syndication of Mercury’s new head office building in Newmarket while it is still under construction. “This signals a key strategic step for Augusta as we move from not just being a buyer of quality completed buildings but into the funding and development of those assets as well,” says Augusta managing director Mark Francis.
The NZX listed company has unconditionally agreed to purchase the 3,090 sq m site at 33 Broadway on which the two-building complex is being developed by Mansons Broadway Ltd for $141,611,878.
Augusta Funds Management Ltd is to raise $83.5 million of investors’ equity to facilitate the acquisition through the offering of 1670 $50,000 interests 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 offering.
The trust is forecast to provide investors with an initial forecast 7% pre-tax return until March 2020, paid from settlement of the sale which will occur when earthworks and piling have been completed - expected to be 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 in the first quarter of 2019.
Mike Houlker says 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 have 13,103 sq m of net lettable space over six levels located 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 5-Green star complex over which it has naming rights.
It will occupy level 2 of the east building and levels 3, 4 and 5 of both the west and east buildings, encompassing a net rentable area of 7845 sq m, on a 12-year lease with two six-year rights of renewal.
The other office tenant so far signed is New Zealand’s largest poultry producer Tegel Foods Limited which will lease Level 1 of the east and west buildings encompassing 2,283 sq 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,” says Houlker. “However, in this case, Mansons Broadway will underwrite that additional vacant space also. The current 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.”
Samara 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 Rider Levett Bucknall Property Industry Awards for 2016.
Phillips says Mansons are obligated to design and complete the complex so that it has 5 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. She 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 developments totalling $1.16 billion completed since 1999.
Houlker says Mansons will at its own cost, carry out a subdivision of 33 Broadway to enable separate titles to be issued for each building (east and west) with an associated proportionate share in the common areas such as the atrium. This will provide future liquidity options to sell one of the titles.
Mark 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 which means it will generally be responsible for repairing any building defects.”
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, encompassing 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 also be found in the Product Disclosure Statement.