Market heats up as punters await next development phase

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1 The National Business Review / August 30, 2013 Special Report Commercial property Experts in the commercial property market showcase their knowledge, products and services in this special feature. They explain what they do, their techniques, their projects and issues investors need to know about. Market heats up as punters await next development phase Chris Hutching All the pundits are saying it a surge in commercial property development is around the corner. Analysts may argue about timeliness and where the market sits on the latest property investment cycle. But several indicators suggest the New Zealand commercial property sector is well past the trough, if not quite at that point of exuberance when new developments are competing with each other for funding and sales. Since the global financial meltdown of 2007, a handful of big projects that were long in the planning and consent phase have been completed and leased in the main centres. Until the past year or so, the state sector was the only reliable provider of new construction for such things as hospitals, motorways. New construction is still at a muted level in Auckland. There are only a few major new office developments or redevelopments under way. At the same time, top tier office vacancy rates continue to track down and Colliers researcher Alan McMahon is predicting net rental growth of 2.5% between now and mid-2014, followed by a 5.3% rise the year after. During the first half of this year, there was net absorption by Auckland office tenants of about 38,000sq m, which is equivalent to a mid-sized shopping centre. This kind of activity hasn t been seen since The overall office vacancy rate is down to 9.9% while space in the prime buildings is about half that level. Main developments completed over the past year include Mansons developments in Victoria St and the new ASB Bank building on Jellicoe St in the CNR VICTORIA-SALISBURY STS: This offi ce development by Richard Diver is one of a dozen the Christchurch developer has either started or at planning stages increasingly popular waterfront precinct, in an 18,000sq m building accommodating 1200 employees. A new Fonterra headquarters opposite Victoria Park will be completed in the next few months. In Wellington most construction is about seismic strengthening. Government policies cutting state sector employee numbers means Wellington overall CBD office vacancy rate is relatively high at near 13.7%, with net absorption of 10,000sq m in recent months. Stock Exchange-listed property companies still vie for the major action in Wellington Argosy Property has acquired the NZ Post Building for $60 VICTORIA ST NEAR PAPANUI RD: NBR Rich Lister John Ryder s replacement for the former BDO Spicers building on Victoria St near Papanui Rd in Christchurch is under way million and will carry out a $40 million upgrade, while Kiwi Income Property Trust s 19-storey Unisys House will undergo major refurbishment work. The recent earthquakes are a damper on smaller office market activity, particularly because of soaring insurance premiums. Post-earthquake Christchurch is a special case. It is a magnet for heavy equipment, concrete and steel as evidenced in the latest annual report of Fletcher Building this week. Cranes dominate the CBD skyline as the last big buildings come down and new ones arise from the rubble. The daily traffic congestion that rivals Auckland s is a once-in-a-generation phenomenon. Hundreds of teams of workmen with trucks, pumps, generators, containers and diggers are laying huge sewer pipes through the middle of streets and joining them up to each household lateral connection. Neighbourhoods are fenced off for weeks and roads closed, opened or made one way at quick notice. In the central city and in fringe CBD locations several buildings are at planning, foundation and construction stages. The focus is on leasing initially and the main agencies advertise them on their websites. When leasing has been completed over the next months some of these properties will be offered to the market, possibly in proportionate title or syndicated offerings. Dunedin s smaller size means it generally avoids the excesses of big market cycle swings, with smaller incremental industrial/showroom developments and education sector accommodation. The biggest venture on the radar of market watchers is a proposed high-rise development on the waterfront currently running the gauntlet of the planning process. The dearth of new development offerings has created strong demand for properties that come on to the market and have long leases and sound tenants. Commercial properties in places like central Queenstown have always attracted high bids and firm yields because they seldom come on the market and are held by a relatively small number of wealthy individuals. A commercial property at 39 Camp St, central Queenstown, recently sold at a Colliers auction for $2.1 million on a yield of 4.47%. Last year, the Red The dearth of new development offerings has created strong demand for properties that come on to the market and have long leases and sound tenants Rock Bar & Cafe sold for $2.3 million on a yield of 3.95% compared with more common yields of 5% to 7.25%. Out-of-town money is usually sought for tourist apartment offerings in the pronounced boom and bust cycles that often end badly for latecomers. In the bigger centres there is a surge in investor competition for well-leased and located commercial properties as evident in recent auctions, especially for lower valued properties under $5 million that attract more bidders. A Bayleys auction last week saw one property sell at a yield of 2.9% and others between 4% and 5%. Another example of pentup investor demand is the popularity of syndications offered by a handful of specialists in this sector. They have been subscribed relatively quickly in recent months. As the property researchers have concluded, the next big development phase outside of Christchurch is on the way but depends on the speed of economic growth over the next year or two. Chris Hutching chutching@nbr.co.nz

2 Commercial and Industrial Collection 2013 / issue 4 Prime time in Auckland Flight to safety in Wellington Development wave hits the Hawkes Bay Over 80 properties and businesses SPECIAL REPORT: COMMERCIAL PROPERTY August 30, 2013 / The National Business Review Land bankers visionaries of urban growth As property again becomes a favoured investment vehicle for those looking to capitalise on the recovering economy, Bayleys Real Estate managing director Mike Bayley answers questions about the opportunities in land banking as an investment 1 How does land banking work? Land banking is the purchase of bare land, or underdeveloped land, with the intention of developing or on-selling that land in the future. Land bankers are visionaries who carefully analyse social and demographic trends to assess where urban growth is most likely to occur, over what time frame, and what type of subdivision will occur whether it be residential or commercial. They also factor in what demand there will be for either the bare land when it is time to capitalise on their investment or what demand there will be for the buildings they have created on that land in the subsequent period. Land banking usually involves sizeable parcels of land for the property s consented zoning and usually occurs close to metropolitan urban limits or within residential suburbs where subdivision potential exists. So, for a small residential land banker, the land size could be 1200sq m, while for a commercial property land banker the land size could be 19ha. 2What causes land banking? What potential is there for land banking from bare land? Land banking is simply another form of investment. It can be taken with a short- or long-term view. The best returns are usually made by those who do considerable research and have a well-formulated development and exit strategy. Land banking is essentially driven by urban growth. Some land bankers base their decisions on zoning changes for land use. What does land banking offer 3 investors? Land banking offers investors the opportunity to be part of building a city, by effectively forecasting how, where, and when the city will grow and capitalising on the accuracy of that forecast in due course. The better the research, usually, the better the return. Of course some land bankers simply happen to be in the right place in the right time when they buy property, which then goes on to grow far ahead of the returns delivered from other investment options. How liquid is a land- 4 banked asset? Land bankers motivations are all different, as are their entry and exit strategies. As a result, we constantly see land-banked parcels coming on to the market allowing other investors or owner/occupiers to buy. This ensures a steady supply of land is always coming on to the market and will continue to do so for decades to come. For example, an investor who bought property on the CBD fringe in the 1970s may well be ing to sell up now to fund look- a luxury retirement style. Simultaneously, a life- younger land banker may be buying land on the outskirts of the city now with the intention of developing that in another 20 years time. Land banking is part of any city s evolution. What is the scale of land 5 banking in New Zealand? Land banking is common. Land banking parcels can be small or large. Anyone with adequate amounts of investment capital can land bank in New Zealand in the same way that investors can buy shares, bonds, futures or term deposits. Town planners and urban design consultants are excellent sources of information, which can be used as the basis for a land banking decision. Council planning reports are also a good source of information on where, why, and how a city will grow. Skilled land bankers are adapt at tap- ping into the knowledge of professionals whose expertise it is to plan for spatial and demo- graphic growth. are the 6What attributes of good land banking property, and how might those attributes boost the return on Mike Bayley investment or the selling price? Opportunities for land banking are like any property buying opportunity they are highly individual, and differ from investor to investor. Some land bankers, for example, see opportunity for small residential developments of, say, three or four units in high-value established suburbs, or for the creation of retail precincts. Some land bankers see streets with opportunity to subdivide and build houses or larger commercial and mixed use premises and some see the potential for creating whole subdivisions with either residential or commercial components or a mixture of both. Alternatively, some land bankers see continued urban growth encapsulating new commercial precincts requiring retail or warehousing services for example. Are there risks associated 7 with land banking? Potential investors should know not only about the opportunities of what they are about to embark on but also the risks. Land bank investors should seek advice and counsel if in doubt, and ensure they are comfortable with the potential for any issues that may arise over the term of their investment. TOTAL PROPERTY IS OUT NOW Feature properties from the Auckland region Corner City Fringe Development Site 367 & 375 Great North Road, Grey Lynn, Auckland 854m² of high profile, freehold mixed use zoned land in two adjoining titles Provides excellent potential for a variety of development options Flexible Vendor will consider short term lease back etc. Corner site on ridge with potential views from multi level building First time on the market since the 80 s, opportunities such as this seldom arise. Tenders Close (unless sold prior by Private Treaty) 4pm, Thursday 26th September 2013 Mike Adams M mike.adams@bayleys.co.nz Clint Barber M clint.barber@bayleys.co.nz High Profile CBD Investment Plus Upside 7 and 9 Union Street, Auckland City, Auckland Split risk investment with diversified office, retail and residential incomes Fully leased providing income of $400,000pa + GST (approximately) Profile corner site provides massive exposure to approximately 120,000 cars daily Explore all the angles with this one! Tenders Close (unless sold prior by Private Treaty) 4pm, Tuesday 17th September 2013 Boundary Lines indicative only Alan Haydock M alan.haydock@bayleys.co.nz Cameron Melhuish M cameron.melhuish@bayleys.co.nz Freehold Auckland CBD Central Character Commercial Investment and Residential Investment 327 Karangahape Road, Auckland Central, Auckland A great multi-tenanted Karangahape Road investment Returns $134,957pa $136,911.20pa net net from from retail retail and and residential tenancies tenancies High profile main road position in this vibrant central city precinct Favourable zoning promotes future development potential Includes six on-site car parks This central city mixed use investment offering must be inspected. Auction (unless sold prior) 11am, Wednesday 18th September 2013 Cameron Melhuish M cameron.melhuish@bayleys.co.nz Damien Bullick M damien.bullick@bayleys.co.nz Top Fully Shelf Leased Residential Multi Tenanted and Commercial Investment Investment Onehunga Mall Road, Onehunga, Auckland Boundary lines are indicative only. Road frontage to Onehunga Mall and adjacent to Dress Smart Diversified income streams Tenants include Paper Plus, Nandos, Sierra Cafe, NZ Post Ltd, Curry Leaf Currently returning $557,640.74pa + GST + Outgoings Tenders Close 12pm, Friday 20th September 2013 (Unless Sold Prior) Tony Chaudhary M tony.chaudhary@bayleys.co.nz Manukau, James Chan M james.chan@bayleys.co.nz Bayleys, Premium 1,392m² Prime Newmarket Carbine Retail Road Investment Industrial 99B Carbine Road, Mt Wellington, Auckland Recently refurbished classy offices with a mix of partitioned and open plan space, together with a boardroom all wired and ready to occupy Stunning warehouse - two roller doors, natural light and new floor coating Popular location in the heart of Mt Wellington with easy access to Auckland s motorway network and Sylvia Park Shopping Centre For Sale or Lease by Deadline Private Treaty 4pm, Thursday 19th September 2013 Sunil Bhana M sunil.bhana@bayleys.co.nz James Valintine M james.valintine@bayleys.co.nz TOTAL A Tale of Two CBDs Out in the Provinces For Sale View these properties and 80 other commercial opportunities in the latest edition of Bayleys Total Property magazine. Cheap Industrial Building - Future Re-development Site Call 0800 BAYLEYS for your free copy or view online at

3 The National Business Review / August 30, 2013 SPECIAL REPORT: COMMERCIAL PROPERTY Auctions work for properties at all price points The successful sale of commercial properties at auction, including higher-value properties, is the result of efforts by both sellers and buyers to become better educated in the process, according to John Bowring, Colliers International s Australasian auction manager. In the past couple of years we have observed property owners and buyers becoming increasingly aware of the benefits of transacting property via auction. As a result, it has become a more widely used method for large as well as small properties, says Mr Bowring, who has recently been promoted by Colliers to oversee the company s auctions in both Australia and New Zealand. He says that while there was previously a degree of reluctance among buyers to participate in auctions of higher-value properties, this is changing, helped by sellers upskilling on auction selling. Vendors are now realising that to achieve a successful outcome at auction, they must do more to help facilitate the process, including making due diligence material readily available to potential buyers, so that they can do their due diligence quickly, at minimal cost, and be unconditional on auction day. So it s been an education process for both vendors and purchasers. Larger auction sales Colliers International s Auckland offices have concluded several auction sales campaigns at over $4 million since the beginning of These transactions include: 207 Lincoln Rd, Henderson, sold for $5.98m through Andrew Hooper, Leroy Wolland and Dwayne Warby; 8 Cleveland Rd, Parnell, sold for $4.24m through John Davies and Jonathan Lynch; 232 State Highway 17, Albany, sold for $4.325m through Andrew Hiskens and Jimmy O Brien; Main Highway, Ellerslie, sold for $5.1m through Charlie Oscroft and John Green; 232 State Highway 17, Albany sold for $4.325m 3 Monahan Rd, Mt Wellington, sold for $8.2m through Greg Goldfinch, Andrew Hooper and Todd Kuzmich; 141 Kitchener Rd, Milford, sold for $4.6m through Euan Stratton, Shoneet Chand and Deborah Dowling; 83 Captain Springs Rd, Onehunga, sold for $4.48m through Andrew Hooper, Hamish West and Greg Goldfinch; and 70 Richard Pearse Dr, Auckland Airport, sold for $4.85m through Brad Johnston and Paul Jarvie. Four of the above properties were sold pre-auction, he says, with the others selling under the hammer. Offering the properties under auction campaigns created sufficient tension in the market which resulted in four sales being concluded before auction day. Auction day just one part of the process Mr Bowring says this illustrates the fact that rather than being solely centred on the auction event itself, auctions can be most successful when they are treated as campaigns that span a number of weeks. Auctions are a process and a powerful sales tool, with vendors being able to sell before or after the auction date, he says. An auction campaign can often be successful in encouraging prospective buyers who do not wish to participate in an auction to act quickly, putting in a good offer before the auction date. Likewise, where reserves are not met in the auction room, we can work with bidders post-auction to reach an acceptable price for all parties, with the vendor comfortable in the knowledge that bidders are already unconditional. Transparency Mr Bowring says one of the key benefits of the auction process for vendors when selling properties at all price points is that the auction process delivers unconditional buyers on the day. Vendors know that when selling a property at auction, they will be presented with unconditional purchasers, compared with other methods where they may only receive conditional offers on the deadline date. Mr Bowring says auctions also give buyers confidence in making bids, knowing that the market price of the property will be set in a transparent environment. With tenders or private treaty campaigns, purchasers are kept in the dark about the price level of other offers. In the auction room, there is 100% clarity. He is keen to maintain momentum in taking higher-value to auction, where he says excellent results can be attained. There is no reason why properties of even higher value than these recent sales can not be sold through the auction process. Any stock that has good tenant covenant and lease terms can gain a good price at auction. The methodology works for a great number of properties large or small. Colliers International s New Zealand auction division has grown significantly; from conducting around 40 auctions a year at launch in late 2009 to a projected total of over 250 in 2013.

4 SPECIAL REPORT: COMMERCIAL PROPERTY August 30, 2013 / The National Business Review Queenstown high-end market taking off Andrew Hyndnam The volume of sales in the Queenstown residential property market spiked in the last quarter of 2012, and it is now apparent this was no aberration, with strong activity to date. To put this into perspective, statistics are on track for the residential market to have its best year since 2007 by sales volume. Buyer confidence has returned to the Queenstown market, fuelled by lower interest rates and a perception that this is a new upward cycle in a rising market. The entry level housing market has become very competitive and the time taken to market and sell properties has dramatically reduced. There continues to be ample supply of residential sections and average quality section values are not increasing rapidly. Good-quality sections with strong attributes have regained favour during 2013 and have lifted in value in some cases by more than 25%. Queenstown s rural lifestyle market has had relatively low sales volume during 2013, especially in comparison to 2012, which was reasonably strong and included 13 sites with quality houses selling for in excess of $2 million. Between 2008 and 2012 sale numbers increased annually back to levels similar to the 2007 peak. Substantial homes The past five years has seen a trend of substantial residences being built within Queenstown and surrounds. These homes are generally of large scale and vary in quality, with build costs ranging in the order of $4000 to $10,000 a square metre, dependent on the quality of finish. High-quality lifestyle housing stock is limited and this is having an impact on buyers, who are choosing to build new architecturally designed homes on high quality sites. Rural lifestyle section values took a dramatic correction during 2008 to 2010, before stabilising and rebounding in Wyuna Preserve near Glenorchy has been exceptionally strong, with approximately $15 million in land sales in the past three years. Activity during 2012 saw an increase in sales volume but the median sale value was significantly reduced, primarily due to moderate quality subdivisions discounting. Higher-priced better quality section sales volume reduced dramatically during 2012 but the first quarter of 2013 has seen this market regain impetus with a smattering of higher-value sections throughout Wakatipu Basin over recent months. The highest recent sales have been for two lifestyle sites at Hawthorne Estate above Lake Hayes with exceptional views, realising sale prices in excess of $1.4 million respectively. Impetus regained Wyuna Preserve has established itself as Queenstown s premium lifestyle estate, with an estimated $50 million of construction activity taking place over the past three years. Millbrook Resort has had strong section sales continuing in the upper price bracket with its latest release at Mica Ridge and house and land packages at Taramea Square attracting good demand. Bendemeer appears to be back in vogue. This high-quality product has re-emerged, having been successfully restructured, directed by Bendemeer Management and smoothly operated by professional and caretaker management and its patient benefactor Alistair Jeffery of Mount Farm Ventures whose perseverance appears to be now paying off with good recent sales activity and three high-quality homes now under construction and a further five high-end houses on the drawing board. Sarah Cairns of Mount Farm Ventures says the strength of enquiry and conversion this winter has been exceptional leading me to believe that this summer is going to be very positive for us. She says buyers are acknowledging its quality, the simplicity of its zoning, and its unique setting, and the recent construction activity of high quality homes is showing strong market confidence. Shortage of quality With Queenstown now more closely connected with Auckland due to regular connecting flights, Queenstown is thriving not only due to visitor numbers but also as a convenient location for a second home.. There appears to be a lack of completed high-quality housing stock in lifestyle areas in the $2-2.5 million price bracket. Market feedback suggests there are a number of older houses in this value range, suffering from outdated construction, single glazing, poor heating systems, and dated amenity areas. Thermally efficient modern housing is a desirable product but seldom available. Some developers have recognised this gap in the market. Millbrook Resort has been successful in developing house and land packages to meet this market demand, with strong sale activity in the circa $2 million market. Bendemeer developer Mount Farm Ventures has recently commenced building the first of what it contemplates will be six concept homes. The first concept home, a large four bedroom four bathroom home, is due for completion May 2014, being a Mason and Walesdesigned high-quality build of traditional sophisticated design, thermally efficient, with spectacular views and a large private land holding. Ms Cairns says the market is already showing strong interest in this product. Andrew Hyndnam is a property consultant Within Bendemeer, an exclusive lifestyle development, large, elevated, secluded and fully serviced residential sites are being developed now. Our range of house and land packages start from $1.8 million. Owners within this community share the award-winning lakeside pavilion complete with entertainment deck and jetty, a tennis court and walking tracks. Bendemeer offers relaxed living, close to golf courses, vineyards, ski fields and Queenstown s International airport to deliver you the ultimate lifestyle experience. Stunning panoramic views coupled with inspired architectural design will create the ultimate living experience you ve been looking for. Create your own living experience today For more information on this unique opportunity please contact Sarah today on: 0508 bendemeer or sarah.cairns@bendemeer.co.nz Bendemeer: 903 State Highway 6, Bendemeer Lane, Lakes Hayes, Queenstown BENDEMEER

5 The National Business Review / August 30, 2013 SPECIAL REPORT: COMMERCIAL PROPERTY Regular return structure attracts investors Oyster Group s most recent successful syndication offering has been Orion House in Grafton, in mid- March this year. It closed more than a week early and was oversubscribed. Oyster offered 115 interests at $100,000 each in the 4,673sqm, three-level property with a projected initial pretax return of 8.47% paid monthly. This followed the success of similar offers made last year by Oyster Property Group for the Mega Mitre 10 tenanted properties in Pukekohe and in Lincoln Road, Henderson. Both closed over-subscribed and earlier than expected. Oyster Property Group is a specialist property company with a proven track record in successful commercial property syndication. Syndication, or proportionate ownership, is a very attractive form of medium- to long-term property investment for those wanting to participate in the ownership of high-quality property without the hassle of day-to-day management. It also allows both smaller investors and groups of individuals the opportunity to invest in property assets of significant value and scale. Proportionate ownership of commercial property provides investors an opportunity to obtain a direct interest in a property proportionate to the amount they invest. Each investor has a proportionate share of the entire property and its fixtures, fittings and chattels. To comply with statutory criteria related to making an offer to the public, Oyster Property Group must ensure: there is a registered prospectus in relation to the offer; a statutory supervisor has been appointed; and a deed of participation has been registered. All relevant information must be provided in an investment statement that will also contain an application form for parties wishing to invest. It is a requirement of the Securities Act 1978 and the Securities Regulations 2009 that, before investing, all investors must receive a copy of the investment statement. How it works The property will either be bought using investor equity (investor funds) solely or by using a combination of investor equity and borrowings from a bank which will be secured by first mortgage over the property. The purchase will be completed by a nominee that will hold the title to the property as a bare trustee on behalf of each investor on a proportionate basis. This is a distinct advantage over property trusts or funds which are generally only suitable for smaller investors and do not provide security of title for individual interests. There are no pre-set limits to the number of investors. This is normally determined by the amount of investor equity required divided by the value of each interest being offered (for example, $5000 equity required by interests of $100,000 means there will be 50 interests available). Investors may subscribe for one or more of the interests available. Oyster Management will become responsible for day-today management of the property and the proportionate ownership scheme. It handles the accounting and distribution of the income returns to investors. Generally this is done on a monthly basis and investors are sent regular reports Resales of Interests Most resales of interests occur by sale to existing holders of interests in the same scheme. Interests are first offered to the existing holders of interests in the proportionate ownership scheme. Investors are free to set their own price and to sell themselves or through their own agent. Benefits High-quality commercial property can provide higher returns than many fixed interest investment options such as bank on call deposits as well as providing a form of hedge against inflation. Investors receive regular payments. These two factors, among others, make commercial property syndication attractive to investors looking to supplement their income via a regular return structure. Additionally the potential exists for capital gains if the property increases in value over time. Selecting property Because Oyster Property Group is well known in the commercial property arena, it receives new property offerings almost daily. When selecting prospective properties, Oyster undertakes a rigorous screening process using comprehensive criteria to analyse each property s value and potential in particular how attractive it will be to tenants well into the future. Areas of focus include the geographic location, structure and infrastructure of the building; age, design, versatility and condition of the buildings and, importantly in today s landscape, seismic strength. The existing leases and tenants are clearly also scrutinised to understand any issues which face the current income stream. Security in investing The opportunity which Oyster offers small to medium and even larger-size investors is security in investing with a company specialising in syndication, with strong corporate goverance. Oyster s current syndication offer is VIP Packaging at 100 Harris Road, East Tamaki, Auckland. The company is offering 114 shares at $100,000 each in this large ha freehold land holding in Auckland s premium industrial precinct. To register interest and receive a copy of the investment satement please contact vip@oystergroup.co.nz or phone (09) SEE MORE For more information go to: QUALITY AUCKLAND INDUSTRIAL PROPERTY PROJECTED 8.5% p.a. CASH RETURN* Minimum Investment $100,000 VIP PACKAGING 100 Harris Road, East Tamaki, Auckland New 12 year TRIPLE NET LEASE plus a further 5 year right of renewal. *The projected return stated in this advertisement is based on holding one Interest (at the subscription price of $100,000) for the period from 1 April March Triple Net means the Tenant is liable for operating expenses AND is responsible for building maintenance as outlined in the Prospectus and Investment Statement related to this offer. To register your expression of interest and receive a copy of the Investment Statement: Phone (09) vip@oystergroup.co.nz Mark Winter (027) SL27075_NBR

6 SPECIAL REPORT: COMMERCIAL PROPERTY August 30, 2013 / The National Business Review Barfoot & Thompson crowns Queen St as king Barfoot & Thompson Commercial has been at the forefront of selling Queen St properties as investors again vie to buy into the country s premier street as it adapts to the changing needs of office, retail, hotel, education and accommodation operators. Over the past decade Queen St has become strongly established as a street of two halves. The top end is characterised by service retail, hotels, apartments and university activities while the bottom end of the street is the commercial hub with its office buildings, cafes, restaurants and high end fashion stores. Barfoot & Thompson has been pivotal in this change. Over the past six years the agency s commercial brokers have sold numerous Queen St properties in off and on-market deals at market leading rates. City commercial manager Peter Churchill says the company owns Queen St as far as selling property goes and it is no fluke. The company s commercial brokers have built up specific, specialised knowledge making them the most innovative and successful team selling Queen St property. Our results speak for themselves: Many of the properties have been snapped up by New Zealand- based private investors and wealthy individual Asian, German and Swiss buyers, pushing out the traditional institutional investors. Some of the properties sold by the company s citybased commercial brokers have changed use and others have sold two and three times at increasingly higher prices. The changing character of Queen St has been driven partly by the city s residential population growing to 25,000 over the past decade and it is expected to climb to 150,000 in the next 30 years. For all the street s recent and continuing changes, Mr Churchill says it is a strategic site and it always will be. It is private investors who realise they are buying into a finite piece of valuable real estate. Broker Cam Paterson says property on Queen St is tightly held and doesn t often change hands because of its strategic characteristics and the dependability of cashflows. Investors who have taken the time to understand the street s idiosyncratic fundamentals have done well. Another of the company s brokers, Kim Loo, says Barfoot & Thompson uses its own extensive multi-cultural broker team across the residential and commercial businesses to tap into foreign investors. We can draw on the wider Barfoot & Thompson broker team s strong and long-lasting relationships with offshore investors when a property is for sale. These relationships have proved invaluable and we work hard at maintaining them. We have close relationships with more of Queen St s owners and investors than anybody. Wayne Muir, another broker, says what surprises him and his colleagues is that an empty building on Queen St is no barrier to its successful sale. Often they sell better than a fully tenanted property as the new owner can immediately contemplate occupation or a change in use for the building. Apart from entire office buildings, Barfoot & Thompson s commercial brokers have also sold a significant number of large and small strata titles with Queen St addresses. Mr Muir says the entry level strata titles on Queen St are comparably not that expensive and investors or owner-occupiers can buy into prime spots. Owner-occupiers can buy a strata title while taking advantage of the lower interest rates, often making it a cheaper option than renting. SOME OF THOSE SALES: 369 QUEEN S Sold for $8.2 million Agents: Kim Lao, Cam Paterson, John Stringer and Wayne Muir Previously owned by the Salvation Army, the property was sold earlier this year to a substantial Asian investor. Barfoot & Thompson won the on-market bid to sell the property against bigger global commercial real estate agencies. The property was purpose built in 1989 and 800m 2 of the 4690m 2 and 45 carpark building was designed for the church s specific needs. TSA used 1800m 2 of the space and the rest was leased as offices along with 45 carparks. The property returned a net income of about $100,000 and perennially suffered from significant vacancy. The building, on a 1034m 2 site backing on to Myers Park, attracted serious interest from developers wanting to change its profile to residential as it has a 128% seismic code and sunny views over Myers Park to the west. 401 QUEEN ST Sold for $5.5 million Agents: Mark Peterson, Wayne Muir and Bill Ludbrook This eight-storey, 2866m 2 superior office building was totally vacant when sold by Mark Peterson to a local occupier in 2008 for $5.1 million and converted to a language school. lt was sold in 2012 again vacant by Messrs Muir and Ludbrook for $5.5 million to a private Swiss investor and is being converted to a hotel that has been leased for 20 years to a Hotel operator with international establishments. The building has 32 carparks and sits on an 835m 2 site. 112 QUEEN ST Sold for $11.38 million Agents: Cam Paterson, Wayne Muir & Bill Ludbrook This five-storey 742m 2 character office building on 187m 2 of prime Queen Street real estate on the corner of Vulcan Lane and Queen St has been sold three times by brokers now working at Barfoot and Thompson. The high-profile site is most recognised for the Partridge Jewellers tenancy on the ground floor. The freehold property, built in the 1930s, was most recently sold by Cam Paterson and Bill Ludbrook in 2012 to a private Christchurch investor for $11.38 million, reflecting a 6.1%. yield. 229 QUEEN ST Sold for $15.5 million Agents: Wayne Muir & Cam Paterson Previously owned by Auckland Central Backpackers, the 10-storey, 4387m 2 building was sold with a neighbouring property previously by Messrs Paterson and Muir for Ironbridge Capital. More recently Mr Muir sold the property to a private consortium which bought the property on a 9.5% yield. He assisted the owners to maximise the building s cash flow and value by drafting a specific triple net lease package, including lessee responsibility for upgrades.

7 Commercial Property Investment Investing across the ditch KCL Property Limited was formed in 2012 with the merger of KCL and Commercial Investment Properties Limited (CIPL). It is now one of the largest property investment companies in the market, with a significant management portfolio throughout New Zealand and Australia. KCL Property has over 30 years experience in sourcing, syndicating and managing commercial property. KCL s aim is to generate wealth for investors through the purchase of properties, which have the ability to provide strong and reliable cash flows alongside steady capital growth over time. Observations in the following columns are based on KCL s experience in the Queensland commercial property sector. We have been actively involved in commercial property investment in the South East corner of Queensland for the past 15 years. Over this period it has proved a very rewarding form of investment with medium to long term gains. Business varies in different countries and we have taken the time to understand this market. We have now purchased and manage over $80m of Australian investment and understand the marketplace as well as the local tax and superannuation factors. A bottomed out Australian Commercial property sector and a favourable exchange rate is making the Australian market more attractive for New Zealand investors. It is our view that the Australian commercial property market is suffering a lack of confidence similar to what New Zealand, and To preserve and then grow equity through property investment by active management. ment. KCL Property Mission Statement particularly Auckland, experienced about two years ago. At present Auckland is experiencing a strong surge in demand on the back of very little rental growth and this is resulting in yield compression. The main issues we see in Australia leading to the lack of confidence are a mix of the following: The Government The current government is not well regarded and has lost the confidence of the voters. A change in the government could well be a catalyst for a change in economic confidence. Mining Sector Mining companies have been very vocal about their dissatisfaction with the current mining tax regime put in place by the Labour Government. Commodity Prices Minerals are still sought after and the current easing of prices is likely to be no more than a normal cyclic situation in the supply and demand curve. High Dollar Australia is still experiencing a high dollar against the US but good companies are learning to live with this and are maintaining good business performance. Exchange Rates Exchange rates between the New Zealand and Australian dollar have increased from around 74 cents 12 months ago to around 87 cents. In our view this is a good level to consider moving money from New Zealand to Australia. Purchasing Yields Yields have softened as a result of the lack of confidence in the market. Currently yields have stopped slipping and are now maintaining to slightly firming. Property that two years ago would have a purchase yield of % are now fetching yields between % depending on location, term of lease, age of building and quality of tenant. Interest Rates In the last 12 months Australian interest rates have dropped substantially and we are now seeing interest rates between 5-6% depending on the terms and amount of money borrowed versus the value of the investment. There are some fundamental differences between the Australian and New Zealalnd commercial property investment market with an obvious one been the different tax laws including Capital Gains Tax (CGT), Land Tax and Stamp Duty. There is also compulsory superannuation in Australia. Capital Gains Tax The possibility of a New Zealand CGT has been met with significant negativity although this tax has long been in place in Australia. An element of this negativity may be perception. CGT is only paid on the actual gain and is only paid when the gain on that investment is realised. It is then paid at the individual s prevailing tax rate at that time. The existence of CGT in Australia ensures that when people make investment decisions they are more likely to take a medium to V V V V V long term view and tend not to focus on short term speculation. Therefore CGT should not be an investment deterrent as we consider that valuation growth prospects will remain positive in Australia. Land Tax In Australia land tax is levied on commercial property which was the case in New Zealand until approximately 12 years ago. Up until approximately four years ago this cost could not be passed onto the tenant. A change in legislation in Queensland has since enabled this to be recovered from the tenant, if allowed for under the lease. Stamp Duty Stamp duty is a big revenue earner in Australia and it is paid on any acquisition and disposition. This can range on a scale rate which in Queensland is generally around 5% of the purchase price. Stamp 234 Bradman St Brisbane Duty is also payable on other capital transfers such as mortgages or car acquisitions. This transaction cost deters a high churning of properties and ensures that investors generally make longer term considered property investment decisions. Superannuation In Australia there is a compulsory superannuation scheme which has been in place since the early nineties. This generates substantial funds which are reinvested in Australia. Following the global financial crisis superannuation fund providers have kept a larger proportion of their investments in liquid funds such as cash. We believe that increased property investment is now on their radar particularly as confidence is being restored back into the local economy and the property market. Coming Soon Key Investment Features AUD$50,000 minimum investment Leased until 2020 to DGL Australia Total net income over AUD$1 million pa Located within a well-established industrial estate Cash return paid monthly To register your interest please contact us on at invest@kclproperty.com or phone FAQ s Cheryl Macaulay Executive Director Bryce Barnett Managing Director Phil Hinton Executive Director What is syndication? Property syndication is a simple concept whereby you become an owner of part of a commercial property leased to a tenant(s) and receive a proportionate share of the net rental income and capital growth of that property. Why choose syndication? Syndication allows individuals to access quality commercial investments from $50,000. This enables you to invest in a range of properties, spreading your exposure across different locations, tenants and property types. What level of return can I expect? Over the last 18 months our syndicate income returns have ranged from 8.25% to 12.00% per annum. Who is KCL? KCL originated in Taranaki and has been syndicating commercial properties since the mid 90s. With offices now in New Plymouth and Auckland they currently manage 70 active syndicates with a management portfolio in excess of $750 million. New Plymouth Devon St East PO Box 44, New Plymouth 4340 P F Auckland - Level 4, 5 High St PO Box 911, Auckland 1140 P F KCL Property Limited is considering making an offer to the public of interests in a new proportionate ownership scheme. No money is currently being sought and no applications for interests will be accepted nor money received until a Prospectus is registered and an Investment Statement is sent to you. KCL Property Limited is seeking preliminary expressions of interest only at this stage. No indication of interest on your part will commit you to investing nor involve an obligation or commitment of any kind. 30 August KCL Property Limited (incorporating the business of Commercial Investment Properties Limited.

8 SPECIAL REPORT: COMMERCIAL PROPERTY August 30, 2013 / The National Business Review Growth for project development services Jones Lang LaSalle s Project and Development Services team is experiencing considerable growth, with a 35% increase in revenue, 32% growth in staff members and projects covering a total 34,000sq m of office, retail and industrial developments so far this year. The Auckland team is seeing a significant increase in demand for project and development services across the commercial sector, focusing particularly on new build opportunities and specific fitout requirements. This is in line with a firming market, with recent projects including Aurecon s 2400sq m fitout and Exxon Mobil s head office. In Wellington, the team has needed to move with the market focusing on seismic strengthening issues and constant reminders from Mother Nature that the big one could be just around the corner. Current projects include a new build retail development on Willis Street, the Microsoft office fitout and a new coolstore for boutique beer brand Hashigo Zake. Christchurch is now in full recovery and continuing to gain momentum. Development is very much infrastructure-led with new commercial developments coming through. The Jones Lang LaSalle team is proud to be assisting in the recovery in a small way with its involvement in a range of projects. These include the upgrading of Merivale and Eastgate Shopping Centres, the development of a new retail centre in Amberly and new industrial developments for Big Chill, Placemakers and Carter Holt Harvey. Tyrell Snelling, national director of Jones Lang LaSalle Project and Development Services, says, Clients are seeking Jones Lang LaSalle Project and Development Services for our ability to provide strategic advice at a development management level through to construction management. We have immediate access to market information through our sales, leasing management, valuation and research departments which enables us to evaluate the value proposition of a particular development option as well as its cost. Safety first Within the industry, risk management is a big issue. We have developed a safety first policy which TOP TEAM: Jones Lang LaSalle s Project and Development Services team (from left) Tyrel Snelling, Andrew Skipper, Ben Dalton, Rebekah Stuart, Gary Perkins, Stephen Threadgall and Tony Jacques has been created to provide the ultimate re-assurance to clients. The Jones Lang LaSalle safety policy has subsequently been recognised by Exxon Mobil as a leader in the delivery of effective health and safety policies, with the award of Gold Contractor Safety Award for working over 30,000 hours without incident. As the industry gathers momentum, supply chain pressures are being exposed in the New Zealand market. Good quality consultants and contractors are becoming increasingly overworked and their lead times are extending rapidly. The Jones Lang LaSalle Project and Development Services team is seeking to fill this market gap with scalable service delivery that minimises risks for its clients. Our track record speaks for itself, Mr Snelling says. As a specialised division of Jones Lang LaSalle, we have been established within the industry and the backup provided by a global team of over 2500 project managers ensures our clients receive the best advice available for their specific project requirements. We pride ourselves on being leaders in managing projects to create real value for clients. As demand for the project development services strategic experience and advice intensifies in New Zealand, so does the demand for qualified and skilled project managers. Recruitment is also playing a large part of the division s agenda in Auckland, Wellington and Christchurch. New-look website This month will see the launch of a new project development services website. The new-look site reflects the Project and Development Services team s track record to date, showcasing all projects it has successfully accomplished. It demonstrates the bespoke service it offers, across a broad spectrum of sectors covering industrial new builds, retail construction and refurbishment, development and project management. Each particular case study highlights the specific requirements undertaken for each project so potential clients have immediate access to all that the Project and Development Services team offers. SEE MORE For more information on the PDS team go to: alle.co.nz/ project-management Developing property not risks Project and Development Services Technical due diligence Feasibility studies Development management Project management Basebuilding and seismic upgrades Office fitouts Industrial newbuilds Retail construction and refurbishment Recladding