Provinces surveyed for better returns
One of the country’s most experienced investors, which recently bought the Spark Central building in Wellington central city for
$197.5 million, is searching the provinces for better returns, regarding some city markets as ‘‘overheated’’.
Mitchell Mackersy, a property syndicator for 25 years, buys new or near-new properties with long-term national and international tenants, and then sells them to ‘‘eligible’’ investors who buy shares in the property. Eligible investors are a defined class of investor regarded as sophisticated and experienced.
The firm’s head, Ron Mackersy, said returns of more than 8 per cent were now ‘‘less normal’’ for standalone commercial investments in prime areas, like Auckland, Tauranga, Wellington, Christchurch and Queenstown.
‘‘You might say it’s got overheated in some of those areas,’’ he said. Instead, it was turning its critical investment eye to office and industrial buildings in Hawke’s Bay, Ashburton and the surrounding hinterland, Dunedin and Invercargill.
Mackersy said Hawke’s Bay and Ashburton were productive agricultural areas where a lot of rural businesses were established to service them and they needed buildings of various types.
Dunedin would ‘‘hum’’ with the
$1.4 billion construction of a new hospital over several years and had a growing tourism sector, while Invercargill was experiencing new property construction like the Kmart which Mitchell Mackersy had just syndicated.
Mitchell Mackersy’s investors wanted returns of 8 per cent or more but this was getting harder to achieve in the city office and industrial markets. Capital gain is not included in its return calculations. That is a bonus if it happens. Its investors, aged about 50-75, were looking for regular income from their investments.
Usually single buildings were bought and syndicated but now Mitchell Mackersy had started buying a mix of properties in different locations to try to maintain those sorts of returns.
An example was the purchase of a new A-grade office building, the Opus building, at 12 Moorhouse Ave for $38m, across from Hagley Park, whose main tenants were large engineering consultancy Opus and telecommunications company Chorus. It had combined that in a company, MM Group 3, with two industrial buildings in Tauranga – a new warehouse in the growing Tauriko region tenanted by NZL Group and a storage facility close to the Port of Tauranga.
‘‘You are able to buy at a better price in Christchurch now,’’ Mackersy said.
The Spark Central building in central Wellington was its largest ever purchase, $197.5m. It is now owned by investors through a company called the Willis Street Ltd Partnership. The building had been upgraded and inside was supported by a big steel frame, Mackersy said. ‘‘The other thing about it, unlike other buildings in Wellington, it is built on rock.’’
Because the Kaiko¯ura earthquake took a chunk of prime Wellington office space, there would be demand for quite some time for A-grade space before new buildings were completed, Mackersy said.
In addition, construction of A-grade office buildings to a higher seismic standard would be very expensive. The firm was not considering any other investments in Wellington. ‘‘When you buy an asset of $200m you probably decide your exposure to that market is probably sufficient at the moment,’’ he said.
‘‘It is now time to look more to the provinces for better returns,’’ Mackersy said in his firm’s autumn newsletter. ‘‘This requires more research as to the strength of the tenant, population trends and local employment opportunities.
‘‘Dunedin, in particular, is showing signs of population growth with the central city upgrade, tourism and the $1.4b new hospital fuelling business and building growth.’’
Queenstown growth, almost solely based on tourism numbers, was offering low investment returns because of rising land costs and lack of infrastructure.
Tauranga was enjoying rapid port expansion and was now the largest port in terms of total cargo volumes and container throughput, bringing more transport and storage requirements, while the Bay of Plenty received 110 cruise ships this season, up a third on the previous season. But construction in Queenstown and Tauranga had become expensive and resulted in low returns to investors.