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Much of 2009 has been a year in waiting for the property sector; however, the most successful and determined investors are proving their resilience and looking to invest in add value opportunities. This is evidenced by the sale of Baycorp House at 15 Hopetoun Street by Nick Hargreaves and John Binning of real estate firm Jones Lang LaSalle.
Vendors AMP Capital were looking to divest a non-core asset as part of their strategy to unlock capital and the purchaser was looking to secure a prominent office building with add value opportunities on the outskirts of Auckland’s CBD. The successful transaction was completed in October 2009.
The nine-level office tower with 140 carparks was built in the 1980s on a freehold site of approximately 3,765 sqm. The building is multi-tenanted with Baycorp leasing just under half of the total 6,078 sqm of net lettable area. The sale at just over $15 million represents an initial yield of 10%.
In New Zealand, REITs (Real Estate Investment Trusts) have played a major role in the expansion of the real estate industry over the last two decades. REITs rely heavily on stable and conservative debt to equity ratios and as a result debt maturity and the inability to ‘re-equitise’ can be a major inhibitor to success and strengthening their property portfolio. John Binning confirms this noting that “over 2009 selected property trusts have been divesting non-core assets to strengthen their balance sheet, comply with trust deeds and accumulate cash to fortify their ‘war-chest’ for purchasing assets that become available over the recovery period.”
The hibernation of REITs investing in the market has enabled a number of private investors to re-enter and secure once in a generation-type acquisitions that they have not been able to purchase in recent years.
Nick Hargreaves, national sales director at Jones Lang LaSalle notes that “traditionally, REITs enter the property cycle during a period of stability after a downturn in the economy. This forces investment yields to contract and forces many private investors out of the market.” Jones Lang LaSalle research shows that from 2000 to mid-2007 Auckland prime office yields contracted by 250 basis points to a two-decade low average of 7.13%.
“However, this dynamic has changed and an upswing in HNW (High-Net-Worth) investors has entered the New Zealand property market as yields have softened by around 150 basis points”, says Nick Hargreaves. In 2008, approximately 24% of the sale transactions in the Auckland CBD and Fringe above $5 million were by HNW investors. This has increased to around 35% for 2009 YTD, according to Jones Lang LaSalle research.
“Not only are HNW investors from New Zealand entering the market, but offshore investors are also looking for the counter-cyclical investment opportunities”, says Binning. This is evident in another Auckland CBD property currently for sale by John Binning at Jones Lang LaSalle – AMI House at 63 Albert Street in Auckland’s CBD. While investor momentum is gathering pace, a large proportion of interest is being fielded from the Asia Pacific countries of Singapore and Hong Kong. Binning says “this is a real positive for New Zealand’s property sector, as it shows investor interest is recouping with New Zealand property seen as an attractive long-term investment option.”