This summer The New Zealand Herald is bringing back some of the best stories of 2021. This story originally ran in February.
Property syndication guru Mark Francis talks to Jane Phare about building up Augusta to prepare for takeover, his network of friendships and how Covid-19 knocked millions off his wealth.
Posing for photos outside his grand office entrance, there's a moment when Mark Francis looks almost mournful.
Guarding the office suite are two massive bronze doors, the handles forming a stylish "A" for Augusta. Named after the course which hosts the US Masters golf tournament, Augusta has been Francis' baby for 20 years. Now, after last year's buyout by ASX-listed Centuria Capital in a deal worth around $169m, it will disappear.
The A-shaped door handles, two nearby bronze plaques – Augusta Capital and Augusta Funds Management - and the signage on the outside of Bayleys House in Auckland's Wynyard Quarter will go as part of a Centuria rebrand - something Francis admits is "quite sad".
With it goes Augusta's – and Francis' - history, the story of a young man in his 20s buying run-down commercial properties in Hamilton, doing them up and flicking them for a profit.
As a boy he was weaned on property deals under the tutelage of his father Peter, one of the shrewdest deal-makers of his day. Think back to the pre-sharemarket crash heyday of Chase Corporation when the famous five - Peter Francis, Colin Reynolds, Adrian Burr, Seph Glew and John Clarke – turned everything they touched into gold.
That DNA, family friendships and old boys' network has filtered down through the generations to form a web of inter-generational connections as intricate as a macrame wall hanging. Francis is cheerfully open about benefiting from those relationships.
Augusta has been in bed with property development giant Mansons and real estate agents Bayleys for years in a lucrative triple scratch-my-back arrangement. You don't need to scratch very deep to find the links.
Francis is mates with the Manson offspring and he went to the University of Otago – where he got a bachelor of commerce degree - with Mansons' money man, director of lending James Kellow.
Peter Francis and John Bayley were doing deals together back in the 80s, a relationship that has survived three generations. Today, Mark Francis and John's son Mike Bayley are friends, as are their children.
It's a business relationship that works well. Mansons builds, Augusta buys and syndicates, and Bayleys sells – a win-win-win, and Augusta investors can thumb their noses at banks offering 1 or 2 per cent interest.
"We've done about $600m worth of deals with Mansons," says Francis. "They know what we want, we know what they're going to produce so it works pretty well."
By his own admission, Francis mixes with a group of successful high rollers who are invited to the same parties – like Zuru king Nick Mowbray's annual extravaganza at the Coatesville Toy Mansion - have boats parked in the Viaduct and turn out for the polo.
"It's a pretty dynamic group. It's good, you're shaped by your mates. You keep setting the bar."
Back in 2001, the groomsmen at his wedding to his now-former wife were old school mates Justin Wyborn, now a property mogul; Sam Ricketts, now managing director/head of investment banking at Jarden; and property developer Adam Reynolds, son of former Chase Corp chief Colin Reynolds.
Decades later he's still knocking around with the same group. His mates call him "Sharky", a nickname he recalls Wyborn gave him years ago, probably because it "rhymed with Marky".
He's competitive, but not ruthless, he says. "I don't like to lose but I've become more accepting of that as I get older. "
That competitiveness made Francis good at sport. He was head-hunted from Sacred Heart College for his rugby skills and offered a scholarship by King's College. He played on the wing - fast, determined, competitive. The opposition didn't see him coming, skills he's used in business.
His bugbear is time, or the lack of it, and something he hates to waste: traffic jams, queues and long waits are "physically annoying".
"If there's one thing I don't have enough of, it's time."
His week is crammed and he makes sure he uses every minute: business; socialising; exercise; and time with his three children – 15-year-old twins (a son and daughter) and a 17-year-old daughter.
His son spent a week of the school holidays with two mates, clearing scrub on Francis' waterfront holiday property at Matakana to earn money. The boatshed – the family are keen water skiers- is already built and a holiday home will be next.
Francis and his partner Dominique Wisniewski live in Herne Bay, party hard and - pre Covid-19 and border closures - skied at Aspen and holidayed in New York or Bora Bora in Tahiti. They make a glamour couple, she with her leggy good looks, he with his designer stubble, hand-tailored jackets and Rolex watch.
Today he's wearing expensive loafers - he admits to an extensive shoe collection that his children tease him about - and a hand-stitched silk-and-linen jacket and shirt made by bespoke luxury label E von Dadelszen. He spends thousands - out of a salary that's between $1.5 million and $1.8m depending on performance bonuses - at Eddie von Dadelszen's Parnell showroom, saying he's the best tailor he's ever been to.
The combination gives Francis a sort of 21st century, Don-Johnson's-older-brother look (for those who remember TV's Miami Vice in the late 80s), uber-cool meets bad boy. Ironically, Francis has recently imported a fast 17.4-metre launch from Miami.
He was in Miami last year for the Super Bowl with Wyborn and others, including rich lister Ben Cook, property developer Kurt Gibbons and All Black Beauden Barrett. That trip, which included golf at the Phoenix Open in Arizona, was a celebration for Francis after pulling off the deal of his life.
Centuria's offer withdrawn after Covid-19
Australian property syndicator Centuria wanted to buy Augusta for $2 a share, at a time when the shares were around $1.30. Francis, an 18 per cent shareholder, stood to gain well over $30m from the deal, done and dusted apart from Overseas Investment Office consent.
He and Bryce Barnett, executive director of Augusta Funds Management, had flown to Sydney to finalise the deal with Centuria's John McBain and Jason Huljich, part of the Huljich family empire. (Francis and Huljich went to King's College together.)
Life was good. On the back of the Centuria deal, Augusta's share price had climbed to $2.17. It was on the return trip, in February 2020, that Francis arrived at Houston Airport to find everyone wearing masks. Back in Auckland, the realities of Covid-19 hit home.
Francis knew there was a material adverse change (MAC) clause in the Centuria contract, something about which he is now an expert. That clause was Centuria's out. By late March last year, the offer was withdrawn.
Suddenly, there was nothing to celebrate. Augusta was heavily invested in the construction of two hotels, one in Auckland's Cook St, the other in Queenstown, projects that were to be the $100m seed investments in Augusta Tourism. Added to that, tenants in Augusta's syndicated buildings couldn't pay rent or needed reductions in order to survive.
"The market always knows," says Francis. "You can just watch it, even before they [Centuria] pulled out. The share price just started tanking away, like everybody. The whole world was freaking out."
"So we had writedowns on those [the hotels] and the banks are freaking out and they're wanting their money back, and Centuria's gone."
On a shelf behind his desk is a crystal decanter full of whisky and he jokes that during stressful times staff are invited to help themselves.
"During Covid it was empty."
Last year Augusta posted a net loss after tax of $27.05m. The company was forced to raise $45m equity and, with Centuria's offer withdrawn, was under what Francis mildly describes as "a fair degree of pressure".
"Suddenly we're raising money at 55c. It was just savage in the space of two or three weeks."
There was chatter online after Francis bought $3m worth of Augusta shares at that price.
"Yeah I did. So did everyone. It wasn't just me, every shareholder had that opportunity. There was no way I was going to let people buy my stock at 55c and me not participate."
As the fallout from Covid-19 lurched from catastrophe to not-so-bad, Francis suspected Centuria would be back. And they were, in June, but this time the offer was $1 a share. As an 18 per cent shareholder he lost on the deal, but still made around $23m with the extra shares.
That was Francis' end game, to build up the business ready for a buyout, and he predicts that Centuria will eventually be taken over by a bigger company, just as Augusta was.
"Right from the start I was always trying to build a business that would capture the attention of a bigger brother, someone who would go 'that's New Zealand for me done' and [put] a bow round it."
Looking back, Francis says he's surprisingly calm during a crisis. "I actually do some of my best work and my best thinking when my back's against the wall.
"I just run a lot usually in times like that. I ran marathons after the GFC."
At 46, he's old enough to remember the choking effects of the global financial crisis of 2007-08.
Francis had listed Augusta (then Kermadec Property Fund) on the NZX in December 2006 and the share price went up to $1.20. By July the following year the slow slide of doom had begun, with the share price dropping to 41c.
It was, as he puts it, his "from hero to zero" moment. But whereas the GFC was a long, painful claw back over two to three years, Covid-19 has been a "wild see-saw" by comparison and the recovery remarkable.
"I've never seen anything like it. Unemployment [is] down, you can't buy a car, you can't buy a boat, house prices are going ballistic, it's truly bizarre."
As a result of that environment, the relationship with Centuria is "supercharged". Francis is contracted to stay on as managing director for three years but he plans to stay longer.
"To be honest, it's just a number. I'm a big stakeholder in Centuria." Francis took shares in the deal – he now has around 1.5 per cent of a $1.5 billion company - so is committed long term.
"There's no way I'm even close to done with what we can do here."
The market's very competitive but he seems to find enough deals. Again, relationships play a big part.
"A lot of stuff that comes across my desk is off-market and is people calling us."
If he wants something badly enough, he doesn't mind a decent scrap. He's proud of winning the fight for control of NPT Investment Property Group against Kiwi Property in 2016, in what he describes as a hard-fought David-and-Goliath scrap.
"We won that because we just wanted it more than they did really. I'm certainly not afraid to get my hands dirty and fight hard for something..."
He admits he can get impatient - having built up a company without having to check in or look over his shoulder - with the process of dealing with a board and directors in a public company environment.
"I'm an entrepreneur, I'm not a corporate CEO. I haven't been a CEO for anyone other than me. When I started there was me and an office girl."
That was back in 2001 as a small-time developer, impatient to get ahead. By 2003 he had formed Augusta Capital Management after deciding that being a fund manager was a better option.
On a wall board charting Augusta's timeline there's a May 2003 entry about buying the Vertex Pacific Building in Hamilton for $3.4m: "With no brand and no reputation and a few ads in the Herald, the $1.85m equity raise was one of Augusta's most difficult."
Francis had called his "good mate" Mike Bayley to help. Bayley agreed to include the Bayleys brand on the ads, immediately giving Augusta credibility.
Fast forward 20 years and Augusta – powered by Centuria – is now raising $180m to add to $2b in funds. The model hasn't changed much - although the range of offerings has - and he's still working with Bayleys, from their head office.
Augusta still offers the mum-and-dad investors a $50,000 option to put that money into what Francis calls "vanilla" investments – a $20m big-box building containing a Mitre 10 or Countdown on a 12-year lease. A passive investment giving a regular monthly return. "Set and forget," says Francis.
But that didn't suit investors with a couple of million in the bank who wanted higher return and, inevitably, higher risk. Five years ago Augusta launched Value-Add Fund No 1, with a range of property projects and investments.
Give us your money – a minimum of $500,000 – for five years, Augusta told investors. They raised $656m and, says Francis, the fund could have raised twice that.
"We had a couple of guys who put in $7m each. It was the first time we had gone after that market and we were absolutely blown away."
New faces at investor meetings
Three years ago Augusta targeted the small-time investor, introducing minimum fund offerings of $10,000, a figure that Francis hints may go even lower.
"That has opened up a whole new market for us." Almost overnight there were a different set of faces at the investor meetings.
The $50,00 investor - "average profile: 69-year-old retired dentist living in Timaru" – was mixed in with both wealthy investors and young people wanting a better return on their savings.
The largest growth leap came in 2014 when Augusta bought rival and biggest competitor KCL Property for $15m.
KCL's portfolio was "parochial, provincial, loyal investor base". Augusta's was Auckland-centric. Taking over KCL would take a competitor out the market. Francis and Bryce Barnett, KCL's founder, often went head-to-head over the same property.
Looking back at mistakes and lessons learned, Francis says he probably wouldn't change much – even the investment in tourism. It was the number one export earner at the time, Augusta investors had an appetite for it and no-one could foresee a global pandemic, he says.
He's a big believer in luck, and timing, playing a major role in business. With Augusta Tourism, the timing was out. But Francis is relentlessly optimistic, saying he believes tourism will bounce back and that investment in real estate is a long-term gain.
"We still hold those assets on balance sheet. We still believe they've got a future. It's just a question of when you're brave enough to put your foot on the gas again and get on with it. And you need your stakeholders to buy into that journey too."
Francis later confirms that work on the two hotels is about to begin again. The Queenstown hotel will be a 5-star Radisson Blu that will take two years to complete. Francis is gambling that tourism will have recovered to some extent by then.
Apart from the tourism portfolio, Francis says other parts of the business have bounced back. The NZX-listed company Asset Plus, which Francis also manages, bought a former Auckland Council building in Graham St with plans to redevelop it to almost twice its size as premium office space. Those plans were put on hold last year due to Covid-19 but Asset Plus announced this week that work is now restarting on the $350m project.
The company, nearly 20 per cent of which is owned by Centuria, the rest by institutions and smaller investors including Francis, also has a major contract to build a 15,000 sq m North Shore headquarters for the council in Albany.
CEO of Property Council New Zealand Leonie Freeman describes Francis as a leader in the industry. The fact that Augusta is restarting and investing in projects is a positive sign for where the sector sees the future post Covid-19, she says.
Augusta and many of the council's other members have a significant and positive impact in building strong communities and cities in New Zealand, she says.
"I greatly respect the vision and business acumen that Mark has shown."
As for Augusta's returns, Francis says there have been "very, very few" investors who have lost money in his time.
"In any investment across $2 billion of real estate not everything has gone perfectly. But certainly the vast majority have gone exceptionally well."
Augusta's latest offer, at 5 per cent return, is "flying out the door". Some funds set up years ago are showing returns of 15 and 16 per cent return on the original equity investment.
"In the last few years we've delivered IRRs (internal rates of return) across our portfolio of about 15 per cent (based on yield plus capital gain). That's a pretty compelling performance."
