Education House, at 178-182 Willis St, Wellington.
Education House, at 178-182 Willis St, Wellington.
A portfolio of three large central Wellington halls of residence is being taken to the market jointly by the Wellington and Sydney offices of Colliers International.
McKenzies Apartments, Education House and Cumberland House, all on Willis St, are being marketed by Richard Findlay and Michelle Chadwick of Colliers International Wellington, in conjunction with James Barber and James Girvan of Colliers Sydney, via an international expressions of interest process closing on August 18.
"The offering meets an increasing demand internationally for student investment property in New Zealand," Findlay says.
The three buildings which have been upgraded, refurbished and seismically strengthened provide 618 student beds in total and generate annual rent of around $3,959,000. They are:
McKenzies Apartments comprising a six level building of 6065sq m on a 2187sq m site at 222-232 Willis St, is the largest asset generating 49 per cent of the portfolio's total income from the Wellington Institute of Technology (Weltec). An $18m redevelopment took place over 2013, stripping the building back to a shell, including major seismic upgrading and a complete re-fit. There are 283 beds in the facility and each apartment has its own bathroom and kitchen.
Education House is a seven level building of 2674sq m on a 717sq m site at 178-182 Willis St which is popular among senior, international and post-grad students who want the comfort and privacy of their own apartment. A $2m refurbishment was completed in 2014 with the 108-bed hall of residence leased to Victoria University.
Cumberland House is also tenanted by Victoria University. The 13-level building at 237-243 Willis St has a 9386sq m floor area on a 2606sq m site. The 227-bed property is a short stroll to Te Aro Campus making a popular choice with design and architecture students. A major $5m refurbishment was completed in February 2014.
Cumberland House, at 237-243 Willis St, Wellington.
Findlay says the portfolio offers long-term leases with an average remaining lease term of nearly 11 years across the three properties. Rent reviews are built in, providing a growing income stream.
"The successful purchaser will secure a strategic freehold land holding in central Wellington; three large, separate property assets; and the excellent tenant covenant of the city's two largest tertiary education providers."
"It provides the opportunity for a foreign investor to allocate capital to the student accommodation sector, through a low-maintenance investment in a stable and transparent market," Findlay says. "This one of the largest and most significant investment opportunities offered on the open market in Wellington in recent years. It's also an extremely rare opportunity for an investor to own a large part of Wellington's student accommodation sector."
Chadwick says Wellington halls of residence are a first port of call for the thousands of students coming to the city to study every year, as they provide affordable and convenient accommodation.
"Halls of residence are also popular among students looking for a private and centrally-located alternative to shared flatting. As such, they have a captive market and generally operate at full capacity year after year."
"There is also an opportunity for the new owner to increase the portfolio's cash flow return in the future through redeveloping one or more of the buildings, which could add up to an additional 404 beds - providing over 1000 beds across the portfolio," Chadwick says.
McKenzies Apartments, at 222-232 Willis St, Wellington.
In addition to the leases to Victoria University and Weltec, the buildings have ground-floor retail tenancies, providing income diversification. They are an easy walk to the university, Weltec and Wellington's central business district.
Findlay says the Government has set a target to grow the value of international education to $5 billion by 2025. "This forecast growth in our education sector will be driven by several factors including demand from fast-growing Asian countries, and the fact that the traditional education markets of the USA and UK are more expensive and further away for Asian students."
Barber says tertiary institutions in New Zealand are treated as Crown entities for the purposes of financial reporting, so they are considered to be low-risk tenants.
As a result of their strong fundamentals, student halls of residence in New Zealand are highly sought after among investors globally, with demand exceeding supply.
