Commercial property syndicator Oyster Group has wasted no time launching its first syndicated investment offering of the year, the $27 million ANZ Business Centre at Albany on Auckland's North Shore.
Structured as a proportionate ownership scheme, it is forecast to provide investors with a pre-tax cash return of 8.25% a year and will require a minimum investment of $50,000.
The cash distributions from the scheme will be paid to investors monthly, and with bank term deposit rates and yields on residential investment properties in the country's largest property market (Auckland) both at low levels, offerings such as this are likely to be attracting increasing interest from investors looking for an investment that can provide a decent income stream.
Apart from the general risks associated with investing in commercial property (such as the loss of a tenant and possible rises in mortgage interest rates), the main negatives associated with investing in syndicates are the relatively high cost of setting them up (which reduces the initial net asset backing) and uncertainty over the term of the investment.
The property is a modern mixed use office building and car park with retail tenants on the ground floor.
The anchor tenant is a property owning subsidiary of ANZ Bank (which has naming rights for the building) which has just taken up a new lease with nine years to run.
The other office tenants are the Department of Labour, Lumley General Insurance and the Ministry of Justice which have leases which are close to their expiry dates, although its is anticipated that the leases to the two government departments will be renewed.
However the property is being sold by interests associated with the Smale family which developed the Smales Farm office park at Takapuna, and the vendors are underwriting the Department of Labour, Ministry of Justice and Lumley leases up to a combined amount of $400,000 to cover any loss of rental income if the leases are not renewed, until any resulting vacant space is retenanted.
Last year Oyster tested the waters of fixed term syndicates by offering a large industrial property at Mangere which was structured to give investors greater certainty around its likely termination date, with the downside that any capital gains arising from the sale of the property when the scheme is eventually wound up, would probably be taxed, which would reduce the eventual capital return to investors.
That scheme is now close to being fully sold down so there are obviously investors who can see value in such a trade off, however Oyster chief executive Mark Schiele said this new Albany offering would not have a fixed termination date (it will be wound up when 75% of investor interests vote to do so) which means capital gains tax should not be an issue.
However Schiele said Oyster would consider offering further syndicates with a specified termination date if suitable properties for such arrangements became available.
The latest scheme is being sold directly by Oyster to its own investor base and through Colliers International.
ANZ Business Centre, 9 Corinthian Drive, Albany. Proportionate Ownership Scheme.
Key features:
Purchase price $27,334,615.
Valuation (CBRE) $27,400,000.
To be funded by: 312 investors interests @ $50,000 each = $15,600,000; Bank loan (ASB) $13,600,000.
Total to be raised = $29,200,000.
Issue expenses $1,865,385, (including contingency/working capital of $612,352).
Loan to valuation ratio 49.6%.
Net asset backing 92.4 cents per dollar invested.
Net rental income $2,350,501.
Net rental yield. 8.6%.
Forecast pre-tax, cash distribution to investors 8.25% pa.
Distributions paid monthly.
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