Building C on the corner of four-building "Spark City" complex
Settlement on the final proportionate shares was concluded last month and marked the completion of a "herculean effort" by the sales team says Mark Francis, Augusta's managing director.
"It was twice as big as any other syndication Augusta Funds Management has taken to the market and yet it was significantly oversubscribed, with a waiting list in the order of $3-4 million. This reflects the increasing depth and maturing of the syndication market and the growing confidence that investors have in this product."
Francis says it was the success of the Telecom syndication that has encouraged Augusta to enter into an unconditional agreement to purchase the Southgate Centre in Takanini, Auckland for $58.5 million. The property is a fully occupied multi-tenanted retail centre anchored by a Mitre 10 MEGA centre with other major brand retailers including Briscoes, Repco, Mad Butcher, Subway, ANZ Bank and Carls Jr.
Francis says Augusta intends to launch a syndication offer for the complex late next month or early March with a scheduled April 30, 2015 settlement date. It will require $34.3 million of investor equity to be raised in units of $50,000 each, with Augusta Capital agreeing to underwrite $23 million of this if required.
Mike Houlker, head of syndications for Bayleys, attributes the success of the Spark syndication to the "institutional grade" quality of the property, encompassing a modern Five Star Green rated building in a growth location in Auckland's CBD and with a long term lease to a blue chip tenant with built in rental growth of three percent per annum
"Investors were also attracted by a projected initial income return of eight per cent per annum but we are now operating in a much more sophisticated and mature syndication market where people are looking beyond the headline number at the underlying property fundamentals.
"We had an overwhelming response to the offering and ended up with a lot of disappointed investors who weren't able to secure a stake in the property. We currently have a long list of people who have asked to be notified should any of the proportionate shares come onto the secondary market."
An analysis of the Spark syndication by Samara Phillips, syndicated investments manager for Bayleys, shows that a total of 370 investors bought the 780 proportionate shares on offer, averaging out at just over two proportionate shares per investor. The largest number of proportionate shares taken by investors was 20, or a total of $1 million. A total of 197, or 53 per cent of purchasers, were people who have previously bought into other syndications marketed by Bayleys which Phillips says shows many investors are spreading their risk across multiple properties.
"Through investing in a number of syndications, investors are diversifying their portfolio throughout various regions, with different property types - retail, office, and industrial - and with differing tenant profiles."
The remaining 173 investors were new to property syndication, although Phillips says many of these were on Bayleys' syndication database having previously expressed interest in the concept. Bayleys has built up a database of close to 7500 over the 13 years it has been involved in syndications, with a full time member of the syndication team constantly qualifying this to ensure that it is as up-to-date as possible.
The big industrial property in Te Rapa, Hamilton leased by Timpack Industries Ltd
Houlker says syndication buyers come from a wide cross-section of New Zealand society - both geographically and demographically. "Historically, we have had a considerable number of traditional 'mum and dad' investors along with a large percentage of retirees looking for an investment which offers better returns than bank term deposits. In recent times, syndications have also had increasing appeal to heavyweight investment trusts, including iwi groups and high net worth individuals who often purchase multiple titles."
The Bayleys' analysis of the Spark syndication shows that 27 per cent of purchasers were based in Auckland with 55 per cent from other parts of the North Island and 17 per cent from the South Island. Houlker says this shows the amount of investment interest there is in Auckland commercial property throughout the country.
"The one thing that we have noticed in the many years we have been in this business is the serious amount of wealth there is in provincial New Zealand, much of it tied in with the rural sector, looking for good investment opportunities with a preference for bricks and mortar. The perception that people from outside of Auckland aren't interested in investing in Auckland couldn't be further from the truth. Investors want to be where the best growth prospects are - and like it or not, these are in Auckland."
Augusta and Bayleys also completed two private syndication placements in the last three months of 2014 to qualifying investors which were also proportionate property ownership schemes but required a minimum $200,000 or $250,000 investment.
Private syndications have a different level of disclosure than is stipulated for public syndication offerings under the Securities Act although the same anti-money laundering verification process is required for both.
At the time of the offers, qualifying investors needed to have minimum net assets of $2 million or annual gross income of at least $200,000, certified by an independent chartered accountant, or fit the definition of minimum subscription investors under the Securities Act and able to invest at least $500,000.
The two private syndications comprised a substantial industrial property in Te Rapa, Hamilton leased by Timpack Industries Ltd for eight years from November 2014, with $6,750,000 worth of proportionate shares offered; and another large industrial holding in Hornby, Christchurch, with a 15-year lease to Australian listed company Amcor which offered 23 proportionate shares of $250,000 each.
Houlker says both offerings were oversubscribed with many of the buyers being seasoned investors who have bought property through Bayleys before and prefer syndications where there are a smaller number of investors involved.
Francis says private syndications have been a big part of the business of KCL Property, another major player in the syndication market that Augusta acquired early this year. The merged entity has almost 170 properties, with a value of approximately $1.17 billion, managed in partnership with Bayleys Property Services Ltd. The former head of KCL, Bryce Barnett, is now an executive director of Augusta Capital Ltd.
"We are looking to build on the strong and successful model that KCL has created for private syndication placements and to develop that further," says Francis. "We also have more public syndications under consideration at present. The strong group balance sheet we now have as a result of the merger with KCL is enabling us to purchase properties unconditionally before presenting them to the market for syndication. This means we are better positioned to acquire assets at favourable prices and terms. "
Houlker says the secondary market for syndicated interests is growing. Augusta Funds Management Limited and Bayleys Real Estate Limited have facilitated the secondary sale of 254 proportionate titles with an initial sales value of $12.7 million for a total resale value of $12,855,000 over the past 40 months. "This shows that there is an active secondary market for proportionate property titles with most reselling at between $50,000 and $60,000, although of course the sale price will always be influenced by the prevailing market conditions and the performance of the property. At the moment we have a waiting list of buyers for good quality syndicated products," Houlker says.
From left to right: Samara Phillips of Bayleys, Mark Francis MD Augusta Funds Management and Mike Houlker of Bayleys.
Francis says while greater disclosure requirements for public syndications have significantly added to their cost, the increased scrutiny by the Financial Markets Authority of offerings has taken syndication to a more corporate and professional level.
"It's made the whole process much more robust and lifted the calibre of syndicators and the properties they are offering to the public which is a good thing for investors.
