From Monday 4 November 2019, we will be located in our new offices on Level 1 (above Joe’s Garage), 36 Grant Road, Five Mile, Frankton, Queenstown. Our phone number will remain the same – 03 450 9540. We look forward to seeing you in our new space.
Mitchell Mackersy are proud to sponsor the Social Impact Innovator Award as part of the Wayfare Spirit of Wakatipu Awards. These awards are organised by the Wakatipu Community Foundation and Lakes District Council, and aim to recognise the contribution of volunteers in our district.
This years awards are to be held at the Events Centre, Frankton on 14 September 2019. We look forward to sharing the award winners with you.
We are excited to be sponsoring the 31st Annual Mataura Licensing Trust Hokonui Fashion Design Awards for 2019. Held in Gore on the 26th & 27th of July, the awards are firmly established as a key event on the national fashion calendar and continue to attract entries and interest from throughout New Zealand. Since 1988, the awards have been a competitive platform for all amateur fashion designers to showcase their designs in front of well-regarded industry leaders. Over the previous years the judging panel has included Karen Walker, Nic Blanchet, Francis Hooper, Trelise Cooper, Kate Sylvester, Liz Findlay, Doris Du Pont and Margi Robertson (of NOM*d).
To read more please follow this link – https://www.hokonuifashion.co.nz/
Ron Mackersy was recently interviewed by online newspaper stuff.co.nz. Please follow this link to read the article which highlights the moving New Zealand commercial property market.
Flexible workspace innovation is changing the way we work in New Zealand, according to Colliers International’s research team.
A growing number of office landlords are looking to implement flexible workspace innovations in their buildings as increasing competition from the co-working sector reshapes tenant expectations. Colliers International’s new Fixed-Term and Flexible Workspace Report (December 2018) highlights the fact that landlords and fixed-term tenants cannot afford to dismiss the impact of coworking. The flexible workspace sector has doubled in size in the past three years, and Colliers’ forecasts show this will double again within the next five years, the report states.
Welcome to our Autumn newsletter. We wish you a happy and healthy 2019.
Mitchell Mackersy and MHP have had a busy start to the year with two significant syndicates added to our commercial property portfolio – Willis St Limited Partnership and MM Group 3 Limited.
Willis St Limited Partnership’s A grade 5 green-star office building settled early this month. Spark Central is located in Wellington’s busy CBD and is our biggest project to date. It is a high quality office asset merging heritage, architecture, sky bridges and futuristic facades with glass elevators and commanding design concepts. Major tenants include Spark, BNZ and AMP Capital.
MM Group 3 Limited consists of three prime assets – an A grade seismic rated office building in Christchurch and two industrial properties in Tauranga. The Christchurch office building is anchored by two strong tenants (Opus and Chorus) and sits in a prime location beside Hagley Park. In Tauranga, one of the industrial buildings is a brand new warehouse facility in the growing Tauriko region tenanted by NZL Group. The other building is an existing well-built storage facility in close proximity to the Port of Tauranga.
We have had great feedback from our investor group on these two projects and look forward to offering similar assets in the future.
In this issue we hear from Ron Mackersy on the changing face of investments returns, and Dale Robertson shares the latest MHP news. We also discuss emergency procedures relating to Health and Safety in commercial properties, report on Colliers International’s update on flexible workspace innovation, and provide an update on the current New Zealand Economic and commercial property markets.
We appreciate your feedback so please feel free to get in touch with your comments and thoughts.
from the Mitchell Mackersy and MHP team
Comments from Ron Mackersy
We haven’t been here for many years – low interest rates and low cap rates. We have become used to geared returns of 8% + but this is now becoming less normal in stand alone commercial investments. It is now necessary to look at mixed location and types, or extremely expensive purchases (such as Spark Central, Wellington) to maintain the 8% + growth returns. We have continued to do this successfully over the past 12 months.
It is now time to look more to the provinces for better returns. This requires more research as to the strength of the tenant, population trends and local employment opportunities. Queenstown growth, for example, is almost solely based on tourism numbers. There is currently local backlash due to the lack of suitable infrastructure and increasing land costs which has resulted in low investment returns. Tauranga continues to have rapid port expansion and is now the largest port in the country in terms of total cargo volume and container throughput. This has lead to increased transport and storage requirements for the extensive import/export sector. The Bay of Plenty received 110 cruise ships this season, up 35% on last season’s 81 ships. Construction in Queenstown and Tauranga has become very expensive, which has resulted in low returns to investors.
We recognise the importance of representation in Tauranga. MHP Property Manager Yvonne Sheppard is settling in well to the office on Cameron Road in Tauranga. Our Syndication Manager, Omea Willows will be joining her in this space from the end of March when her family relocates from Queenstown. We look forward to expanding our presence in this growing market.
We continue to look throughout the country and not necessarily in Auckland, Tauranga, Wellington, Christchurch and Queenstown. Other areas of interest for us include Hawkes Bay, Ashburton and its surrounding hinterland, Dunedin and Invercargill. Dunedin, in particular, is showing signs of population growth with the central city upgrade, tourism and the $1.4 billion new hospital fuelling business and building growth. Tourism is strong with spending up 7.8% to $759 million in the year to September 2018. Cruise ship passenger numbers are up 11% to 180,000 with 119 ships visiting Dunedin this season. The University of Otago continues to grow with its roll expected to reach a six-year high in 2019. The covered Forsyth Barr Stadium continues to attract visitors attending concerts and sporting events.
Also topical at the moment, is the current debate in Capitals Gains Tax. The writer’s view is that it has political and voter support this time. So prepare yourselves for that – a watered down version of the current commentary. We watch this topic with interest.
In summary, we continue to look for mixes of location and business types for new investment opportunities. Investors need to be prepared for lower returns if continuing to stay in traditional high demand areas. Mixing in other geographical locations while remaining committed to our key fundamentals might be the way of the immediate future.
News from Dale Robertson’s desk
The MHP team continues to grow with Richard Griffiths, our new Facilities Management Co-ordinator, joining us this month in the Christchurch office. We have also welcomed Anna De Vries into the Executive Assistant & HR Advisor role in Christchurch while Gabrielle Wethey is on maternity leave. Meanwhile, the Tauranga office is continuing to be busy with our growing management portfolio in the area.
MHP continues to focus on industry best practice. As part of this, we are in the process of updating our standard property management agreement. The changes reflect the ever-changing regulatory environment for commercial property in New Zealand, in particular the Health and Safety at Work Act 2015 and the new Fire and Emergency New Zealand regulations passed in May 2018. The changes are intended to enable better handling of practical matters that commonly arise, for example around tenant fit-outs, routine repairs and maintenance.
Our new flagship office asset, the Spark building on Willis St in Wellington, is now fully bedded in to MHP’s management portfolio. We have partnered with CBRE locally which is looking after the facilities management of the building (overseen by MHP), with MHP taking the lead on lease and tenant management. We are also pleased to have commenced management of two prime warehouse properties in Tauranga (located in Tauriko and Mount Maunganui) both part of the MM Group 3 portfolio.
Finally, annual accounts season is fast approaching. The MHP finance & property management teams and our accountants are preparing for this busy time of year and we aim to deliver accurate accounts to all investors in a timely manner.
Property tax update from Mitchell Mackersy
Whether you’re a first-time buyer or you buy and sell property all the time, it’s important that you understand your tax obligations, and the rules such as bright-line.
As a rule, if you’re buying a property with the intention of selling it, you’ll probably have to pay tax on any profit you make. Under existing land tax rules, gains from the sale of land are taxable when the land is bought with the intention of resale (“intention test”). The bright-line test was introduced to supplement the existing land tax rules. The bright-line property rule says you’ll pay tax when you buy and sell a residential property within five years, unless an exception applies. It’s easy to know if this rule applies in your situation.
When does the bright-line rule apply from?
The bright-line rule applies to the sale of any residential property purchased on or after 1 October 2015 as follows:
• If you bought a residential property between 1 October 2015 and 28 March 2018 inclusive, the two-year bright-line rule applies.
• If you bought a residential property on or after 29 March 2018, the five year bright-line rule applies.
However, any time you buy a property intending to resell it, you’ll need to pay tax on any profit you make when you sell that property.
When does the bright-line period start?
Generally, the bright-line period starts on the date the property title is officially transferred to you, which is the date the property transfer is registered with Land Information New Zealand (LINZ). If the property is in another country, the bright-line period starts on the date the transfer was registered under that country’s laws. Different dates apply if you sell the land before your purchase was registered with LINZ or if you bought the land as a result of a subdivision of property (for example as a sale “off the plans”). If you sell a property outside of the relevant bright-line period for you, the bright-line rule won’t apply to your property sale, but the intention test may still apply.
What types of property does this rule apply to?
The bright-line rule only applies to residential property. A property isn’t residential if it’s mainly used for business or as farmland. That means when you sell farmland or business property, the bright-line rule won’t apply. But you’ll still need to follow existing tax rules.
Exceptions to the bright-line rule
There are three main exceptions that apply to property transactions in which the bright-line test will not apply. These three exceptions relate to:
• The sale of your main home;
• Inherited property; or
• Relationship property.
What does “main home” mean under the bright-line rule?
To qualify for the main home exception, the property must have been used as your main home for 50% or more of the time you have owned it. You also need to use more than 50% of the area of the property as your main home. (The area that counts as your main home generally includes things like your yard, gardens and related buildings like the garage.) This is an important point if you rent out a granny flat attached to your house or part of your house is used as a business. As an example, if you use 40% of a property as your home and 60% as a rental property, you can’t use the main home exception if you sell that property.
My main home is held in trust. Am I eligible for the main home exception if I sell it?
Residential properties held in trust can use the main home exception under the bright-line rule if:
• the house sold was the main home of the principal settlor of the trust, or the principal settlor didn’t have a main home, and
• it was the main home of a beneficiary of the trust.
The principal settlor of a trust means the settlor whose settlements to the trust have been greatest by market value. In other words, the principal settlor is the person who has made the biggest financial contribution to the trust.
How and when do I pay the tax I owe on income I’ve made from a property sale?
If you sell your property within the bright-line period which applies to your property, you’ll need to complete an income tax return. You’ll generally include the amount of property income you’ve earned in the “other income” box on your return. You’ll also complete an IR833 Property Sale Information form, which you should receive from the IRD by post after your sale has settled. You will be allowed deductions against your gains on sale according to ordinary tax rules.
If you would like more information about the bright-line rule, please contact us or view the IRD’s questions and answers on the bright-line rule here.
Ben joined Mitchell Mackersy in November 2016. He holds a Bachelor of Commerce degree and a Masters in Property and Development.
Ben is a key member of Mitchell Mackersy’s syndication team, instrumental in identifying and researching commercial property opportunities. We run a due diligence process for all potential acquisitions, and Ben works with the team to model the return and evaluate the property for purchase.
Before opportunities are presented to investors, Ben and the team undertake extensive research on the tenants, including their current and projected financial performance, as well as the directors’ and shareholders’ credit history. This information provides the detailed background required to meet our fundamental investment criteria of purchasing buildings with strong tenants.
For industrial assets, our due diligence focuses on the strategic location of the property, including its proximity to ports, airports and main arterial routes. For bulk retail properties we look closely at the consumer demographics and spending patterns for the catchment area. Extensive financial modelling is also undertaken to evaluate the viability of new opportunities, and the investment returns likely to be enjoyed by investors in the future.
We also focus on the construction methodology of potential acquisitions to ensure the buildings are fit for purpose, meet or exceed current NBS standards, and will require minimal capital expenditure going forward.
Ben works with both Mitchell Mackersy and MHP, providing strategic advice to the property and investment portfolio while using his project management skills to assist with the facilities management of the MM Group 2 portfolio.
Part of our strategy of offering a steady pipeline of high-quality investment opportunities is considering which geographical areas in New Zealand currently offer the best returns.
In today’s low-yielding investment climate, this leads us to look at selected regional markets where purchase prices still reflect a superior rate of return, or where market dynamics are particularly compelling for various reasons. Two markets of particular interest at the moment are Tauranga and Wellington.
Tauranga is part of the ‘golden triangle’ between Auckland, Hamilton and Tauranga. It is a fast-growing centre of over 200,000 people with a major strategic asset, Port of Tauranga (New Zealand’s premier port by volume). Major exports include logs from the vast plantations in the Rotorua area, kiwifruit and dairy produce, while significant imports include fuel (stored and distributed from the Gull depot at the port), stock feed for the dairy industry, and containers bound for the big distribution centres south of Auckland. These factors make Tauranga a key growth hub where we believe property investments are likely to perform well in the future.
Among our investment purchases in Tauranga in the past few years are the Trustpower HQ on Durham St and several industrial/warehouse buildings in the fast-growing Tauriko Business Estate.
In Wellington, the A-grade CBD office market is very compelling at the moment. Following the November 2016 earthquake, there is virtually no vacancy in Wellington CBD offices – with nearly 100,000m2 of office space removed from the market after the earthquake. While new developments are underway, it will still be another two to three years before the first of these are ready for fit out, and even longer before any significant amount of new office space enters the market. Tenants are competing for the extremely limited amount of vacant space and quality buildings with higher seismic ratings are in huge demand. In addition, rents for new A grade buildings must rise further due to the high cost of construction.
A Mitchell Mackersy investor group owns the TradeMe headquarters on Market Lane. We are also pleased to have the flagship Spark Central building on Willis St under contract, which has recently been offered to our investor group.
Since being founded 18 years ago, Ocado has become the world’s largest online grocery retailer with a market capitalisation in excess of £5 billion.
At Ocado, their customers’ orders are picked and packed in highly automated warehouses using an army of purpose-built robots.
Using robotics and automation, artificial intelligence and advanced data analytics, Ocado have revolutionised the grocery industry.
They were the first grocery supermarket to launch Android and iOS apps, and use algorithm and smart optimisation to continually monitor stock through their warehouse replenishment system.
The Ocado Smart Platform, their end-to-end ecommerce, fulfilment and logistics platform transforming the online grocery market, is now available to large brick-and-mortar retailers around the world.
Please follow this link to watch the video –