One of New Zealand’s leading property fund managers has identified growth opportunities in the self-storage sector driven by increasing population density, lifestyle trends, a rapidly ageing population, and more frequent extreme weather events.
A new Centuria fund, Centuria NZ Value-Add Fund No. 2 LP (Value-Add Fund No. 2), is acquiring 43 College Hill, a prime location in Central Auckland, and converting the well-suited existing building into a premium storage facility.
Value-Add Fund No. 2 will have a two year term, unless extended by investors, within which the fund will aim to sell the repositioned property.
Value-Add Fund No. 2, which is available to wholesale investors, is targeting an annualised pre-tax return of 13 percent. The fund’s objective is to return investors’ capital invested plus the target annualised pre-tax return on that invested capital, though returns are not guaranteed and may vary.
Returns will be paid only once the property is successfully sold, following which the net assets realised will be distributed to investors.
The offer is fully underwritten, and investment is available from $100,000.
Centuria NZ chief executive officer Mark Francis says that while Value-Add Fund No. 2 deviates from its usual offerings, the property presents a unique opportunity being a rare combination of a premium central location in an area with limited storage competition near some of Auckland’s wealthiest suburbs and a building structure which suits refurbishment, taking advantage of this growing sector.
“Whilst Centuria typically targets investment-grade properties with long leases and low-risk profiles, we have a strong track record in adding value to assets, reflected by our Value-Add Fund No. 1, which launched in 2016, realising the potential from five Auckland holdings and delivering investors an Internal Rate of Return (IRR) of 11.73 percent over the three year life of the fund.
Although past performance is not indicative of the future performance of this new opportunity, we believe 43 College Hill is the perfect property on which to launch our second value-add fund.
“Additionally, Centuria NZ has extensive development expertise, having completed $170 million of development projects over the past two years through our in-house development management team.”
43 College Hill will be the fund’s sole asset, and Centuria has conducted extensive due diligence after entering into a sale and purchase agreement in May 2023.
“Refurbishing the structurally sound four level concrete frame office and warehouse building is relatively straightforward. Centuria has negotiated early access ahead of settlement, already commencing preliminary works, which provides a head start on the project,” he says.
Bayleys Real Estate has been appointed to market the offering.
Mike Houlker, head of Bayleys’ Investment Products division, says the refurbished asset’s self-storage operation will include temperature and humidity-controlled wine storage.
“As with the general self-storage, this is expected to be in-demand amongst the wealthy residential catchment of the surrounding suburbs Ponsonby, Wynyard Quarter, Saint Marys Bay, Freemans Bay and Herne Bay, especially with available space within existing central Auckland wine storage facilities currently extremely limited.”
The refurbished property will also include a separate high-security vault tenancy featuring safety deposit boxes that has already been pre-leased to an entity associated with the company that established the Customhouse safety deposit box operation in Central Auckland.
A retail tenancy with its own entrance and carpark will also be situated on the high-profile College Hill road frontage.
Although the premises would suit a wide range of retail occupiers, Centuria is currently targeting the space to be an upscale wine shop providing synergies with the wine storage facility.
Further income will be derived from the lease of a digital advertising billboard visible to traffic on College Hill, subject to receiving resource consent.
Mr Houlker says refurbishment of the property is expected to take up to 12 months, leaving at least a year or more of trading before the anticipated sale date and distribution of the net assets realised to investors.
“Centuria also intends to seek a pre-committed sale of the property during the refurbishment phase, but if market conditions dictate, there is the flexibility to wait until after trading commences.”
Bayleys Investment Products manager Samara Phillips says that location is a major trading determinant in the storage sector, with large sites close to major roads and population centres in high demand.
“The property’s catchment area has a high population density and an above-average demographic profile, both of which are conducive to the demand for self-storage.
“Growth in the underlying demand for storage underpins the demand for storage-based real estate opportunities.
“Storage has become a desirable and strong performing alternative asset class, particularly in countries like the United States and Australia where storage-specific real estate investment vehicles are becoming increasingly common.
“The fund intends to provide investors with an attractive target return within a defined investment horizon.
“Centuria NZ’s extensive value-add and development experience and significant property market expertise can provide investors with confidence that the property’s refurbishment, management and sale will be expertly handled,” she says.
For a copy of the Investment Memorandum for Centuria NZ Value-Add Fund No. 2 LP, visit www.centuria.co.nz/vaf.
Financial information to assist investors in understanding how the target annualised pre-tax return is calculated (including the key assumptions upon which it is based) and the risks associated with the investment are set out in the Investment Memorandum. The offer is only being made to persons who are ‘wholesale investors’ within the meaning of clause 3 of schedule 1 of the Financial Markets Conduct Act 2013.