Market Valuation - Sorted Smart Investor
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Market Valuation
143 Durham Street
Central Business District
Tauranga
Client: Durham Investment Group
Valuation Date: 28 June 2016
TelferYoung (Tauranga) Limited
++ Local Knowledge, National Coverage telferyoung.com
Table of Contents
1.0 Executive Summary........................................................................................................................ 3
2.0 Scope of Work ................................................................................................................................ 5
3.0 Legal Description ............................................................................................................................ 8
4.0 Rating Valuation and Statutory Charges ........................................................................................ 8
5.0 Location .......................................................................................................................................... 9
6.0 Land .............................................................................................................................................. 11
7.0 Resource Management ................................................................................................................ 12
8.0 Environmental Issues ................................................................................................................... 12
9.0 Improvements ............................................................................................................................... 13
10.0 Tenancy Details ............................................................................................................................ 17
11.0 Operating Expenses ..................................................................................................................... 25
12.0 Valuation Methodology ................................................................................................................. 26
13.0 Market Commentary ..................................................................................................................... 27
14.0 Valuation Considerations .............................................................................................................. 30
15.0 Market Rent Assessment ............................................................................................................. 31
16.0 Sales Evidence ............................................................................................................................. 40
17.0 Valuation Rationale ...................................................................................................................... 46
18.0 Risk Analysis ................................................................................................................................ 53
19.0 Valuation ....................................................................................................................................... 54
20.0 Conditions of Valuation ................................................................................................................. 54
21.0 Statement of Limiting Conditions and Valuation Policy ................................................................ 55
Appendix A: Computer Register
Appendix B: Additional Photographs
Appendix C: Planning Map
Appendix D: Tenancy Plans
TelferYoung (Tauranga) Limited
Level 2, Westpac Building, 2 Devonport Road, P O Box 455, Seventh Avenue Tauranga 3140, NEW ZEALAND
Phone : 07 578 4675 Facsimile : 07 577 9606
email : tauranga@telferyoung.com website : www.telferyoung.com
1.0 Executive Summary
Asset Valued: 143 Durham Street, Central Business District, Tauranga
This is a commercial zoned property of 1,649 square metres located within
the Tauranga central business area is developed with a three level
commercial building with showroom/commercial services accommodation
to the ground floor and office suites to the above levels. In addition there is
on site parking provided both to the front of the building, part of which is set
back from the road, and to the rear of the building.
Purpose of Valuation: Market Value for financial reporting purposes
Instructing Party: Scott McKenzie
Client: Durham Investment Group
Report Prepared For: Durham Investment Group
C/- Property Managers Limited
PO Box 234
Tauranga 3140
Attention: Scott McKenzie
Date of Inspection: 28 June 2016
Date of Valuation: 28 June 2016
Interest Valued: Fee Simple 681802
Basis of Valuation: Market Value - with existing tenancies
Land Area: 1649m² (more or less)
Rentable Floor Area: 2006.6m²
Tenancy Summary: Contract Rent Analysis
Rentable Area Rate Premises Carpark Other Passing
Tenant Lease Type
Area (m2) ($/m2) Rent Rent Rent Rent
NZ Fire Service Net 821.8 $112.67 $92,589 $5,200 $0 $97,789
The Property Group Gross 143.0 $226.82 $32,435 $2,600 $0 $35,035
SILC Net 563.0 $159.33 $89,706 $9,150 $0 $98,856
Quantum Education Net 445.7 $139.43 $62,140 $3,640 $0 $65,780
Repco Net 137.2 $141.69 $19,439 $3,275 $0 $22,714
CNHH Net 73.6 $191.09 $14,064 $1,170 $0 $15,234
Vacant Tenancy Net 157.4 $0.00 $0 $0 $0 $0
Net Contract Rent: $330,405 per annum plus GST
Net Market Rent: $388,070 per annum plus GST
Residual Lease Term: 1.1 years
Valuation Methodology: The Market Value has been established by:
+ Income Approach
+ Market Approach
+ Cost Approach
The Executive Summary must be read in conjunction with the formal valuation report and with TelferYoung (Tauranga) Limited's Statement of Limiting Conditions and Valuation Policy.
3
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga City telferyoung.com
Valuation: Four Million Eight Hundred and Fifty Thousand Dollars ($4,850,000)
plus GST (if any).
Indicating:
Yield on Passing Income: 6.81%
Yield on Market Income: 8.00%
Resultant IRR: 7.77%
Property Risk Profile: The property is considered to have a low risk profile in comparison with
other commercial properties in the locality.
Conditions of Valuation: TelferYoung policy is that reports cannot be readdressed for any
purpose beyond 90 days from the date of valuation. This policy has
been set to meet professional indemnity insurance requirements. It is a
condition of this report that any valuation needing to be readdressed
beyond 90 days may require re-inspection by the valuer with an update
fee charged.
The Deeds of Lease etc being fully executed and as described in this
report.
Report Issue Date: 7 July 2016
Valuer: Paul Higson - B.Comm (VPM) ANZIV MPINZ
Registered Valuer
Director
The Executive Summary must be read in conjunction with the formal valuation report and with TelferYoung (Tauranga) Limited's Statement of Limiting Conditions and Valuation Policy.
4
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga City telferyoung.com
2.0 Scope of Work
2.1 The Valuer
The valuation has been undertaken by Paul Higson who provides this objective and unbiased
valuation. The valuer has no material connection with the instructing party or interest in the property
and has the appropriate qualifications and experience to undertake the valuation.
2.2 Our Client
Durham Investment Group.
Other than the client or addressee, the report may not be relied upon by any third party. We accept no
liability to third parties. Written consent is required for any third party wishing to rely on this report. We
reserve the right to withhold that consent, or to review the contents of the report if consent for third
party use is sought.
2.3 Purpose of the Valuation
Market Value for financial reporting purposes.
2.4 Asset Valued
143 Durham Street, Central Business District, Tauranga.
2.5 Basis of Valuation
We are to provide our opinion of Market Value which is defined in International Valuation Standards
2013 as:
The estimated amount for which an asset or liability should exchange on the valuation date between a
willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the
parties have each acted knowledgeably, prudently and without compulsion.’
2.6 Relevant Dates
Inspection Date: 28 June 2016
Valuation Date: 28 June 2016
2.7 Extent of Investigations
We have carried out an inspection of exposed and readily accessible areas of the improvements.
However, the valuer is not a building construction or structural expert and is therefore unable to certify
the structural soundness of the improvements. Readers of this report should make their own enquiries.
This report has been prepared for valuation purposes only and is not a geotechnical or environmental
survey. If any defect is found, including structural defects, this information could impact on the value
of the property.
No allowances are made in our valuations for any expenses of realisation, or to reflect the balance of
any outstanding mortgages either in respect of capital or interest accrued thereon.
5
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com
We have not been provided with an environmental audit of the property and we are not aware of any
potential environmental concerns. Our valuation and report assumes that the land and buildings are
unaffected by harmful contaminants or noxious materials which may impact on value.
We have not conducted a land survey of the subject property and assume all improvements lie within
the title boundaries.
We have not sighted a current Land Information Memorandum for the subject property during the
course of this valuation. Our report is subject to there being no outstanding requisitions or adverse
information affecting the property.
2.8 Nature and Source of Information Relied Upon
Information used to prepare the valuation has been obtained from our property inspection and public
records. Additional information relied on includes:
Name of Document Source of Document
Computer Register Land on Line
City Plan Tauranga City Council
Lease documentation Property Managers Limited
2.9 Assumptions and Special Assumptions
Standard valuation assumptions made in completing the report are stated in 'Extent of Investigations'
and 'Statement of Limiting Conditions and Valuation Policy'.
2.10 Reporting Format
We have provided a formal valuation report meeting all appropriate valuation and professional
standards.
This report must be read in conjunction with TelferYoung (Tauranga) Limited's Statement of Limiting
Conditions and Valuation Policy.
6
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com
2.11 Valuation Standards
Our valuation has been prepared in accordance with International Valuation Standards 2013 and
Australia and New Zealand Valuation Guidance Notes and Technical Information Papers including:
+ IVS - Framework
+ IVS 101 - Scope of Work
+ IVS 102 - Implementation
+ IVS 103 - Reporting
+ IVS 230 - Real Property Interests
+ NZVGN 1 - Valuations for use in New Zealand Financial Reports
+ ANZVGN 1 - Valuation Procedures - Real Property
+ ANZVGN 2 - Valuations for Mortgage and Loan Security Purposes
+ ANZVGN 9 - Assessing Rental Value
+ ANZRPGN 1 - Disclaimer Clauses and Qualification Statements
+ ANZRPGN 4 - Methods of Measurement
7
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com
3.0 Legal Description
Identifier: 681802
Land Registration District: South Auckland
Legal Description: Part Lots 17-18 Deposited Plan 17
Estate: Fee Simple
Area: 1,649 m² (more or less)
Proprietor(s): PML Nominess (Durham Investment Group) Limited
Interests: A Certificate pursuant to Section 643 (2) Local Government Act
1974. This relates to the construction of a building over two or
more allotments.
A Mortgage to Bank of New Zealand.
Comments: The above interests have been taken into account in our valuation
considerations.
Appendix: A copy of the Computer Register is included as Appendix A
4.0 Rating Valuation and Statutory Charges
4.1 Rating Valuation
As at 1 July 2015
Component Value
Land Value $1,810,000
Improvements $2,280,000
Capital Value $4,090,000
Rating Valuations are conducted on a mass appraisal basis, generally once every three years, in order
to provide a basis to assist territorial authorities to collect revenue through rates. Individual properties
are not inspected on a regular basis and changes in the improvements may not be recorded. The
rating values are expressed on a Freehold Estate basis, even when the property might be leasehold.
In this instance the property is held in a series of proportionate titles. In this instance the property is
held in a series of proportionate titles.
4.2 Statutory Charges
As at the date of valuation, the rates per annum (inclusive of GST) are as follows:
Council Value
Territorial Authority $23,998.14
8
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com
5.0 Location
Sourced from QuickMap
Appendix C attached shows the location of the property to the north -western side of Durham Street,
within the Tauranga central business area.
The immediate area is one where commercial services and office accommodation predominate and it
is away from the main retail centre - retail activities generally are limited to Willow Street, Devonport
Road, Grey Street, lower Spring and Wharf Streets and The Strand. Nearby amenities include
Baycourt, a venue for conferences, shows and other cultural activities, the Bay of Plenty Polytechnic
Bongard Centre, Tauranga City Council administration offices and two car parking buildings. Although
it is away from the main retail centre, it is nevertheless, conveniently situated within easy walking
distance of the city NZ Post premises, trading banks, professional offices and other services.
This portion of the central business area was the scene of a number of new developments in the mid
1980's with in particular Durham Street going through a changing use with many purpose built office
developments and the Cinema 8 multiplex attracts a considerable pedestrian flow to the upper end of
Devonport Road and in particular that area of Elizabeth Street between Devonport Road and Grey
Street. Metered parking is also available to Durham Street adjacent to the property.
Also of considerable influence on the environment of the central business area is the 'Edgewater'
project that was completed in the mid 1990’s by the Tauranga City Council. This project involved the
upgrading and beautifying of the heart of the City Centre with some $12M being spent on repaving the
streets and footpaths, planting of trees, installing seating and overall beautification with the aim being
9
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com
to link the business area to the waterfront. The predominant theme is nautical with a touch of the
Mediterranean.
Within the immediate area the University of Waikato has announced plans to expand it’s presence in
the city by constructing an inner Tauranga city tertiary campus. The construction is expected to cost
between $65 and $70 million to be built in stages, with the completion of the project now expected
around 2020. The project is expected to lead to 272 tertiary operations jobs. The location of the
project is expected to include the land within 20 metres north east of the subject’s northern boundary
(the land shown as a car park to the aerial photograph shown in Section 6.0). Due to the subject
property’s proximity to this development, we consider that the subject could very attractive for the BOP
polytechnic / University of Waikato to purchase.
Another major property on Durham Street is located on the former site of the Bay of Plenty Times at
108 Durham Street. This land of 2,867 square metres has recently had a substantial office
development of three main levels [plus basement car parking. The development is occupied and
leased in its entirety by Trustpower Limited. We understand that approximately 300 staff are
accommodated within the completed development.
These developments are expected to invigorate the southern portion of Durham Street and as a result
there may also be improvements to the streetscape (such as the roading surface, kerbing, street
landscaping and footpaths).
10
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com6.0 Land
Sourced from Mapi
Area: 1649 m² (more or less)
Frontage: 34.24 metres (approximate)
Depth: 48.88 metres (approximate)
Shape: This is a regular shaped site.
Contour: The natural contour of the land rises moderately from the road by
approximately 3 metres. The land has however been excavated to
have a flat contour over the building platform. The rear land is also
more or less flat but lies above the main ground level. Drive on
access is available to the site from both Durham Street and the
adjacent service lane to the southern boundary.
Services: Durham Street is sealed, kerbed and channelled with concrete
footpaths, street lighting and on street metered parking provided.
The rear service lane is sealed.
Comments: Good sun is received and the property has an outlook over the
surrounding commercial area. The property is located near to both
the new Trustpower building and the proposed location of the
extended BOP Polytechnic / University of Waikato Campus.
11
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com7.0 Resource Management
7.1 Zoning
Territorial Authority: Tauranga City
Plan Status: Operative
Zone: City Centre Zone
Zone Description: The purpose of the City Centre zone is to maintain and enhance the
role and function of the city centre as the principal retail, commercial,
civic, entertainment and cultural centre of the city and the Western
Bay of Plenty sub-region. Zone provisions enable a wide range of
land-use activities to establish within base environmental standards.
Development Controls: The zoning provides for a range of uses with the following being
among the listed permitted activities (subject to certain conditions):
- Accessory buildings and activities
- Ancillary retail and offices
- Business activities other than offensive trades.
- Community facilities.
- Emergency services.
- Places of assembly.
- Residential activities.
- Schools and tertiary education premises.
- Visitor accommodation.
Comments: We note that offices are permitted activities within this zone.
The city centre zone has different permitted building heights
contained within it. We note that for the subject property's location
the permitted building height is 49 metres above the Moturiki Datum
(the local average sea level). The road frontage of the subject
property is approximately 10 metres above the Moturiki Datum.
8.0 Environmental Issues
8.1 Contamination
We have not been provided with an environmental audit of the property and we are not aware of any
potential environmental concerns. We refer you to our Statement of Limiting Conditions and Valuation
Policy on matters relating to potential contamination.
8.2 Land Information Memorandum
We have not obtained a Land Information Memorandum (LIM) report for this property.
12
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com9.0 Improvements
9.1 Overview
This is a three level, multi tenancy office building that was originally constructed in 1987/88.
See Appendix B for additional photographs.
9.2 Commercial Building
9.2.1 Floor Areas
The approximate floor areas are as follows:
Gross Floor Area Rentable Areas
Level 1: 1,032.4 m²
Level 2: 936.8 m²
Level 3: 405.0 m²
NZ Fire Service tenancy 821.8 m²
The Property Group 142.1 m²
SILC 323.5 m²
Quantum 351.0 m²
Repco 137.2 m²
Vacant 157.4 m²
BOP Homeopathy College 73.6 m²
The floor areas are based on the ‘The Guide for the Measurement of Rentable Areas’ (revised June
2013) published jointly by the Property Council of New Zealand (PCNZ) and the Property Institute of
New Zealand (PINZ), and also as summarised in Australia and New Zealand Real Property Guidance
Notes (ANZRPGN) 4 – Methods of Measurement.
13
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com9.2.2 Construction
Foundations: Concrete slab.
Flooring: Concrete.
Exterior Walls: Texture coated fibre cement, tiles and window glazing. Many of the eaves
have timber panelling to the underside.
Framing: Reinforced concrete columns and beams plus concrete blocks.
Roofing: Coloursteel.
Joinery: Powder coated aluminium.
Internal Linings: Plaster board, timber panelling, some texture coated ceilings and
suspended soft board.
Ceilings: Plasterboard and softboard. Some textured.
9.2.3 Description – Ground Floor (Level 1)
NZ Fire Service
This large tenancy has a U shape. It contains four partitioned offices, an open area to the front with
double doors to the exterior, photocopier room and workroom. To the northern portion of the tenancy
there are two meeting rooms with a retractable partition between them. There is also a toilet room
with three toilets, two hand basins, one vanity and a disabled access shower.
The rear area is known as the Region 2 Coordination Centre and has been described as the rear
store. It consists mainly of a large open plan room with a three metre stud and double doors to a rear
store. There is also a rear office. The main portion of this area does not have a lined ceiling.
The staff room is a large room with a laminate bench top and servery, stainless steel sinks (2), range
hood, glass splashboard, hot water heater, two element hob, wall oven, pantry, under bench cupboard
space and drawers and double doors to the exterior.
14
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comThe Property Group
This area comprises three partitioned offices, two open plan areas and a store room. In addition this
tenancy has the exclusive use of a ground floor toilet located off the ground floor entrance foyer.
Ground Floor Entrance Foyer
This is situated at the Durham Street entrance and contains floor tiles, stairs to upper levels, a door to
the exterior and storage space.
9.2.4 Description – First Floor (Level 2)
SILC
There is a reception area located to the rear of this tenancy which has double doors to the rear service
lane area. A passage leads to 14 partitioned offices plus open plan office areas . In addition there is
a store room and small staff room area.
Quantum
This tenancy contains eight partitioned offices, a reception, open area with double doors to exterior,
rear passage with a door to the common passage.
This tenancy also has the paved level 2 patio area located adjacent to the north of the building.
Common Areas
These comprise a stair landing, passage, rear entrance, two sets of toilets and a small staff room.
9.2.5 Description – Second Floor (Level 3)
Repco
This tenancy contains a reception, six partitioned offices and a store room.
Vacant Tenancy
This tenancy contains a reception, a several partitioned offices.
CNHH
This tenancy contains a reception with glass doors to the common area and three partitioned offices.
Each office has a laminate bench top, under bench and overhead cupboard space and drawers .
Common Areas
These comprise two stair landings (eastern and western ends), passage, two sets of toilets and a
small staff room.
15
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com9.2.6 Lessee Fitout/Improvements
Nil in terms of those items listed above.
9.2.7 Lessor Fitout
Those items listed above including the internal partitions, lighting, floor coverings and air conditioning.
For a more specific listing of each tenancy’s Landlord provided fit out, please refer to Section 10
Tenancy Details.
9.2.8 Building Condition
The overall presentation and condition of both the exterior and interior of the building is generally good
and above average quality accommodation is provided. The building is however starting to show signs of
it’s age in places. Further some areas require maintenance. When originally constructed, the building
provided some of the best office accommodation available in Tauranga. However, recent office
developments have led to a raising of the standard for what can be considered A grade office
accommodation. Whilst still providing very good office accommodation, it is now in the middle portion of
the available B grade office stock in Tauranga.
9.3 Earthquake Categorisation
On 10th May 2015 the Government announced major changes to the rules to assess and strengthen
buildings for earthquake risk. It proposes to adopt a “zone risk” assessment of earthquake prone
buildings throughout New Zealand.
The country will be split into low, medium and high seismic risk zones with respective timeframes for
assessment of 5, 10 and 15 years, and strengthening to be carried out within 15, 25 and 35 years.
Education and emergency buildings would be targeted, by requiring those in high and medium seismic
risk areas to be identified and strengthened in half the standard time. Schools, universities and
hospitals in high and medium risk areas would be upgraded more quickly, while buildings in low risk
areas could be assessed and strengthened more gradually.
Building owners would be encouraged to upgrade their buildings ahead of the allowable timeframe by
establishing a web-based public register and requiring notices on such buildings highlighting the level
of risk.
There would also be a new requirement to strengthen earthquake-prone buildings when doing
substantial alterations.
Tauranga is identified in the medium risk zone which requires Tauranga City Council to complete their
assessment of earthquake prone buildings within the next 10 years and those buildings falling short of
the required 34% NBS would be required to be strengthened within 15 years after the end of the
assessment timeframe.
A Parliamentary select committee has considered the Bill with the proposed changes and reported
back to the Government in mid-2015. The Bill is to be known as the Building (Earthquake-prone
Buildings) Amendment Act and was initially expected to be passed in late 2015. However, we
understand that although it is now in it’s final stages, it is not now expected to become law until later in
2016.
16
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com9.4 Building Act 2004
The Building Act 2004 requires that all buildings which include certain specified systems must have a
Compliance Schedule and a Building Warrant of Fitness (BWOF). The Act requires the various
services and other facilities as set out in the Compliance Schedule to be inspected on a regular basis,
and the Warrant of Fitness to be renewed annually.
A Building Warrant of Fitness has been issued for the subject property and this expires on 14 May
2017. It refers to Compliance Schedule No 1268.
9.5 Other Improvements
Site development includes a sealed driveway and parking areas to the front and rear, retaining walls,
steps, gates and low level landscaping. In practice, there are effectively 26 car parks available. 13
car parks are provided to the rear and 13 to the front.
Our valuation has been prepared on the basis of the improvements being located within the site
boundaries and constructed strictly in accordance with the recommended practices, and free from any
defect; unless otherwise stated within this report.
10.0 Tenancy Details
10.1 Introduction
The property is subject to six leases with the seventh tenancy being vacant. We note that these are
all Auckland District Law Society (ADLS) Leases.
Five of the leases are net leases (that is where the tenant pays a full share of the outgoings on top of
the rental) and one is a gross lease (whereby the rental is deemed to include the outgoings.
The Property Group tenancy is proposed to be subject to a new lease. It is this tenancy which has a
Gross Lease. We have also been provided with a proposed right of renewal for the Homeopathy
lease. Our assessment is conditional upon this lease and the right of renewal being fully executed.
We have been porovided with a rental schedule by Property Managers Limited and this provides trhe
basis for the rentals detailed in this report. Our assessment is therfore also conditional upon the
rentals being as described in this report.
We have identified a number of the tenancies as having a CPI based rent review basis. Please note
that this refers to the change in the Consumer Price Index.
Summaries of the main terms and conditions of each lease are given to the following pages.
17
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com10.2 Tenancy Summary
10.2.1 NZ Fire Service
Landlord: 143 Durham Street Investment Group
Tenant: NZ Fire Service Commission
The Premises: Part of the Landlord's building known as suites 1 and 2 at 143
Durham Street, Tauranga, being the ground floor of approximately
813.1 square metres as shown on the attached plan. In addition
the tenancy comes with five car parks.
Commencement Date: 1 June 2012
Term: Five years.
Rights of Renewal: Two of three years each.
Contract Rent: $97,789 per annum plus outgoings and GST
Rent Reviews: Two yearly.
Rent Review Basis: CPI.
Ratchet Clause: The rental on review shall not be less than the annual rent payable
as at the commencement date of the then current lease term.
Business Use: Office, administration, storage.
Outgoings: Outgoings recoverable from the tenant include:
Rates, utility charges, rubbish collection charges, NZ Fire
Service charges and maintenance charges in respect of all fire
detection and fire fighting equipment, building reinstatement
insurance premiums and related valuation fees and any
insurance excess in respect of a claim but not exceeding
$500, contract charges for building services, maintenance of
the premises and building services (but excluding
responsibility for structural repairs), grounds maintenance,
yard and car parking area maintenance, costs of supplying an
annual building warrant of fitness.
Unrecovered outgoings include:
Structural repair and maintenance.
Special Conditions: Clause 49 of the lease details that the outgoings percentage for
the property shall be 27.5%
10.2.2 The Property Group
We note that a new lease has been proposed for this tenancy. Our valuation is based on the terms
and conditions of lease being as follows:
18
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comLandlord: 143 Durham Street Investment Group
Tenant: The Property Group Limited
The Premises: The building at 143 Durham Street, Tauranga with the premises
described as Suite 3 situated on part of the ground floor
comprising approximately 143 m2 exclusive area as is outlined on
the attached plan. In addition there are two uncovered car parks
with the tenancy.
Commencement Date: 1 February 2016
Term: Three years.
Rights of Renewal: One of two years.
Contract Rent: $35,035 per annum plus GST
Rent Reviews: Two yearly.
Rent Review Basis: CPI.
Ratchet Clause: Nil.
Business Use: Office accommodation and ancillary uses and all other uses or
purposes permitted under the TCC City Plan.
Outgoings: Outgoings recoverable from the tenant include:
Utility charges.
Rubbish collection charges.
Unrecovered outgoings include:
Rates, NZ Fire Service charges and maintenance charges in
respect of all fire detection and fire fighting equipment, building
reinstatement insurance premiums and related valuation fees,
contract charges for building services, maintenance of the
premises and building services (but excluding responsibility for
structural repairs), provisioning of toilets, grounds
maintenance, yard and car parking area maintenance, Body
Corporate charges, management expenses, costs of supplying
an annual building warrant of fitness.
Structural repair and maintenance.
Special Conditions: The Landlord's fixtures and fittings are listed as including the
following:
- Air conditioning and security system
- Suspended ceilings with recessed light fittings
- All internal partitioning
- Toilet and kitchen fittings
- Blinds and curtains
- All floor coverings
19
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com10.2.3 SILC
Landlord: 143 Durham Street Investment Group
Tenant: SILC Limited
The Premises: That part of the Landlord's property known as Suites 4 & 8, First
floor, 143 Durham Street, Tauranga, comprising a combined floor
area of approximately 517.35 square metres as shown highlighted
on the attached plan. In addition the tenancy comes with eight car
parks.
Commencement Date: 1 October 2012
Term: Five years.
Rights of Renewal: One of five years.
Contract Rent: $98,856 per annum plus outgoings and GST
Rent Reviews: Two yearly.
Rent Review Basis: Market.
Ratchet Clause: The rental on review shall not be less than the annual rent payable
as at the commencement date of the then current lease term.
Business Use: Offices.
Outgoings: Outgoings recoverable from the tenant include:
Rates, utility charges, rubbish collection charges, NZ Fire
Service charges and maintenance charges in respect of all fire
detection and fire fighting equipment, building reinstatement
insurance premiums and related valuation fees and any
insurance excess in respect of a claim but not exceeding
$500, contract charges for building services, maintenance of
the premises and building services (but excluding
responsibility for structural repairs), provisioning of toilets,
grounds maintenance, yard and car parking area
maintenance, costs of supplying an annual building warrant of
fitness.
Unrecovered outgoings include:
Structural repair and maintenance.
Special Conditions: The Landlord's fixtures and fittings are listed as including the
following:
- Fixed floor coverings
- Ducted air conditioning system
- Vertical blinds
- Floor to ceiling fixed office partitions
20
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com10.2.4 Quantum Education
Landlord: 143 Durham Street Investment Group
Tenant: Quantum Education Group Limited
The Premises: All that part of the Landlord's building known as Suite 5, First
Floor, 143 Durham Street, Tauranga and being an area of
approximately 240 square metres as highlighted shown on the
attached plan. In addition the tenancy comes with four car parks.
Commencement Date: 1 October 2010
Term: Three years.
Rights of Renewal: Three of three years each.
Contract Rent: $65,780 per annum plus outgoings and GST
Rent Reviews: Two yearly.
Rent Review Basis: CPI.
Ratchet Clause: The rental on review shall not be less than the annual rent payable
as at the commencement date of the then current lease term.
Business Use: Education and training facilities.
Outgoings: Outgoings recoverable from the tenant include:
Rates, utility charges, rubbish collection charges, NZ Fire
Service charges and maintenance charges in respect of all fire
detection and fire fighting equipment, building reinstatement
insurance premiums and related valuation fees and any
insurance excess in respect of a claim but not exceeding
$500, contract charges for building services, maintenance of
the premises and building services (but excluding
responsibility for structural repairs), provisioning of toilets,
grounds maintenance, yard and car parking area
maintenance, costs of supplying an annual building warrant of
fitness.
Unrecovered outgoings include:
Structural repair and maintenance.
Special Conditions: Not Applicable
21
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com10.2.5 Repco
Landlord: 143 Durham Street Investment Group
Tenant: GPC Asia Pacific Limited
The Premises: The part of the Landlord's premises known as Suite 8, 143
Durham Street, Tauranga comprising a floor area of approximately
110 square metres as highlighted shown on the attached plan. In
addition the tenancy comes with three car parks.
Commencement Date: 1 September 2013
Term: 3 years and three months.
Rights of Renewal: Three of three years each.
Contract Rent: $22,714 per annum plus outgoings and GST
Rent Reviews: Annually on 1 December.
Rent Review Basis: Market.
Ratchet Clause: The rental shall increase at each annual review date by a fixed
level of 2.5%.
Business Use: Professional offices
Outgoings: Outgoings recoverable from the tenant include:
Rates, utility charges, rubbish collection charges, NZ Fire
Service charges and maintenance charges in respect of all fire
detection and fire fighting equipment, building reinstatement
insurance premiums and related valuation fees and any
insurance excess in respect of a claim but not exceeding
$500, contract charges for building services, maintenance of
the premises and building services (but excluding
responsibility for structural repairs), provisioning of toilets,
grounds maintenance, yard and car parking area
maintenance, costs of supplying an annual building warrant of
fitness.
Unrecovered outgoings include:
Structural repair and maintenance.
Special Conditions: The Landlord's fixtures and fittings are listed as including the
following:
- Air conditioning
- Light fittings and carpet tiles
- Fixed partitioning
- Blinds
- Vertical blinds
- Floor to ceiling partitioning
- Kitchenette
22
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com10.2.6 College of Natural Health & Homeopathy
Landlord: 143 Durham Street Investment Group
Tenant: Bay of Plenty College of Homeopathy Limited
The Premises: That part of the Landlord's premises known as Suite 10, 143
Durham Street, Tauranga comprising a floor area of approximately
72.79 m2 as highlighted shown on the attached plan. In addition
the tenancy comes with one car park.
Commencement Date: 1 June 2012
Term: 2 years and one month.
Rights of Renewal: One of two years. In addition we note that a further renewal taking
the expiry to 31 December 2018 was granted.
Contract Rent: $15,234 per annum plus outgoings and GST
Rent Reviews: Upon renewal.
Rent Review Basis: Market.
Ratchet Clause: A "ratchet clause" to the effect that the rental on review shall not
be less than the annual rent payable as at the commencement
date of the then current lease term.
Business Use: Administration, training and associated activities.
Outgoings: Outgoings recoverable from the tenant include:
Rates, utility charges, rubbish collection charges, NZ Fire
Service charges and maintenance charges in respect of all fire
detection and fire fighting equipment, building reinstatement
insurance premiums and any insurance excess in respect of a
claim but not exceeding $500, contract charges for building
services, maintenance of the premises and building services
(but excluding responsibility for structural repairs), provisioning
of toilets, grounds maintenance, yard and car parking area
maintenance, costs of supplying an annual building warrant of
fitness.
Unrecovered outgoings include:
Structural repair and maintenance.
Special Conditions: The Landlord's fixtures and fittings are listed as including the
following:
- Carpet
- Four air conditioning units
- Reception counter (built in)
- Blinds
23
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com10.3 Tenancy Schedule
Tenancy Summary
Tenant Current Lease Term Final Lease Passing
Commencement Expiry Type Income
NZ Fire Service 1-Jun-12 5 Years 31-May-23 Net $97,789
The Property Group 1-Feb-16 2 Years 31-Jan-21 Gross $35,035
SILC 1-Oct-12 5 Years 30-Sep-22 Net $98,856
Quantum Education 1-Oct-13 3 Years 30-Sep-22 Net $65,780
Repco 1-Sep-13 3 Years 30-Nov-25 Net $22,714
CNHH 1-Jul-12 2 Years 30-Jun-18 Net $15,234
Vacant Tenancy Vacant $0
Total Passing Income $335,408
Please note that the Property Group tenancy is a gross lease and that the estimated net rental from
this tenancy is $30,032. This provides a total estimated net passing rental of $330,405.
10.4 Weighted Average Lease Term
We have calculated the Weighted Average Lease Term (or WALT) of the leased tenancies at the
subject property at 13 months (or around 1.1 years). This is considered poor and multi tenanted
properties are typically being brought to the market with WALTs of between 3 and 5 years. Our
workings are shown in the table below:
24
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comTenant Lease term remaining Net Rent %age
NZ Fire Service 11 months $ 97,789 30% 3.26
The Property Group 31 months $ 30,032 * 9% 2.82
SILC 15 months $ 98,856 30% 4.49
Quantum 3 months $ 65,780 20% 0.60
Repco 5 months $ 22,714 7% 0.34
CNHH 30 months $ 15,234 5% 1.38
WALT 13 months $ 330,405 100% 12.89
* Estimated net rental
11.0 Operating Expenses
We have been advised of the following level of operating expenses (or OPEX) for the property. These
figures have been provided to us by Property Managers Limited and we have relied on these as being
accurate for the current year:
Operating Expenses (OPEX)
Budgeted $/m 2 of Rentable
Item % of Total
Amount Area
Local Authority Rates (ex GST) $20,868 $8.92 25.5%
Water Rates $1,200 $0.51 1.5%
Insurance premiums, related valuation fees and any excess $13,260 $5.67 16.2%
Maintenance and repair charges $6,500 $2.78 7.9%
Common area costs $2,000 $0.85 2.4%
Service contract charges $2,850 $1.22 3.5%
Fire Service charges and maintenance of detection and fire fighting equipment
$2,600 $1.11 3.2%
Cost of ground maintenance $600 $0.26 0.7%
Cleaning $19,854 $8.49 24.2%
BWOF and Building Act compliance costs $1,300 $0.56 1.6%
Management expenses $8,600 $3.68 10.5%
Other $2,290 $0.98 2.8%
Total $81,922 $35.01 100.0%
We understand that the above figures are exclusive of GST. At approximately $35 per square metre,
we consider that the OPEX level is perhaps at the lower end of the expected market level of OPEX for
similar properties. We note for instance that the adjacent property at 127 Durham Street which is
developed with a multi tenancy, two level office building has an OPEX level of approximately $48 per
square metre.
We note that under the leases in place at the property, 72.8% of the OPEX is recoverable from the
tenants. The Property Group tenancy is a gross lease and therefore the rental is deemed to include a
share of the OPEX. Based on the relativity of this tenancy’s estimated net rental, to the total
25
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comestimated rental for the property, this tenancy would account for approximately another 7.5% of
OPEX. There is also a vacant tenancy. Based on the relativity of the assessed fair market rental of
this tenancy, we believe that this tenancy should account for approximately 8% of the OPEX. This still
leaves sum 11.7% of OPEX unaccounted for. In dollar terms this is estimated at $9,584.
Further comment on this issue will be made under the income based approaches shown later in this
report.
12.0 Valuation Methodology
12.1 Introduction
To establish Market Value we have utilised the following recognised valuation methods:
12.2 Income Approach
The Income Approach is predicated on the conversion of net actual or market income, which either is
or could be generated by an owner of the interest, to value. The approach encompasses various
methods to indicate value. Methods adopted in this instance include:
Income Capitalisation
This method encompasses the conversion of net income (actual, market or notional) to value via the
application of a capitalisation rate or yield (investment return). The basic premise of income
capitalisation is that a property investor expects a pre-determined rate of return on their investment.
The yield varies according to a number of factors including: risk, type & scale of investment, location,
residual lease term and expected income and capital value growth. The two main variables, namely
income and yield, are analysed from available rental and sales evidence.
Implicit adjustments are made when determining an appropriate yield to apply, however, in instances
where the contract rent varies from market rent, the present value of the variation is adjusted against
the capitalised value. The capitalised value may also be adjusted for costs associated with vacancy if
existing or imminent, refurbishment/incentives and capital expenditure.
Discounted Cash Flow
The Discounted Cash Flow (DCF) method is a variation of the Income Capitalisation Method whereby
cash flows are explicitly forecast over a ten-year investment horizon. Allowances are made within the
cash flow projection to account for the market’s expectation of rental growth, or where appropriate,
structured rental adjustments in accordance with the leases. Deductions for costs associated with
property ownership are then made to establish the net annual cash flow. Costs of ownership may
include; unrecovered outgoings, vacancy (actual or potential) and capital expenditure.
Having determined the net annual income, we then establish the terminal value of the property based
on a hypothetical sale at the beginning of year 11 of the investment horizon, and discount the cash
flows at a market based discount rate, as analysed from sales, reflecting the cost of capital, risk and
required return. The aggregate of the present value of each cash flow establishes market value via
this method.
The method is of particular relevance where cash flows or costs associated with ownership are
irregular.
26
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com12.3 Market Approach
The Market Approach provides an indication of value by comparing the asset with identical or similar
assets for which price information is available.
This approach considers Market Value by comparing directly the property with sales of other similar
properties. A unit of comparison is analysed, in this instance the rate per square metre ($/m²) of gross
floor area, in order to provide a practical basis of comparison where evidence is limited to properties
with fewer similarities. Adjustments for a range of variables may also need to be considered.
Direct comparison is considered to be one of the best methods of valuation however seldom are any
two properties directly comparable due to differences in age, floor area, quality, location, lease terms
and cash flows.
12.4 Cost Approach
The cost approach estimates value using the economic principle that a buyer will pay no more for an
asset than the cost to obtain an asset of equal utility, whether by purchase or by construction. It is
based on the principle of substitution, i.e. that unless undue time, inconvenience, risk or other factors
are involved, the price that a buyer in the market would pay for the asset being valued would not be
more than the cost to assemble or construct an equivalent asset.
Under this approach we began by establishing the cost to replace the improvements with their modern
equivalent having regard to current building costings (including holding costs, developer’s profit and
fees). We then deduct an allowance for market based depreciation, encompassing physical
deterioration, functional obsolescence and economic obsolescence. To the value of improvements we
add our estimate of the market value of the land as analysed from sales.
13.0 Market Commentary
13.1 Economic Overview
The Reserve Bank of New Zealand (RBNZ) in releasing its June 2016 Official Cash Rate (OCR) kept
the OCR at 2.25%. The graph below shows the positions of the OCR and the day bank bill rates.
27
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comIn releasing the statement, the Reserve Bank stated that global financial market volatility has abated
and the outlook for global growth appears to have stabilised after being revised down successively
over recent quarters. There has been a modest recovery in commodity prices in recent months.
However, the Reserve Bank also believes that the global economy remains weak despite very
stimulatory monetary policy and significant downside risks remain.
New Zealand’s domestic economic activity continues to be supported by strong net immigration,
construction, tourism and accommodative monetary policy. The dairy sector remains a moderating
influence with export prices below break-even levels for most farmers. The exchange rate is higher
than the Reserve Bank believes is appropriate. Together with weak overseas inflation, this is holding
down tradables inflation. The Bank considers that a lower New Zealand dollar would likely raise
tradables inflation and assist the tradables sector. New Zealand’s inflation is still relatively very low
(mostly due to low fuel and other import prices). However, there is expected to be upside potential
given rising fuel and other commodity prices, an expected depreciation in the New Zealand dollar and
some increase in capacity pressures.
House price inflation in Auckland and other regions (such as Tauranga and the Western Bay of Plenty)
is adding to financial stability concerns. Auckland house prices in particular are at very high levels and
additional housing supply is needed.
There continue to be many uncertainties around the economic outlook. Internationally key areas are
the prospects for global growth and commodity prices, the outlook for global financial markets and
political risks. Domestically, the main uncertainties relate to inflation expectations, the possibility of
continued high net immigration and pressures in the housing market.
The Reserve Bank has stated that monetary policy will continue to be accommodative and that further
policy easing may be required to ensure that future average inflation settles near the middle of the
target range (1% to 3% per annum). The OCR will next be reviewed on 11 August 2016.
The graph below shows the track of Real Gross Domestic Product again the Australian and USA
economies since 1990:
28
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.com13.2 Regional Property Market
From the mid 1990’s until 2008, confidence in the region was strong with there being a wide variety
and number of new developments undertaken. As a result, the regional industrial and commercial
property market attracted considerable investor interest with the market characterised by a lack of
supply of well-located and tenanted properties. In today’s market these requirements are a major
factor for potential investors.
It is now apparent that the regional industrial and commercial property market peaked around the
beginning of 2008 with there being a small time lag that followed the collapse of the subprime
mortgage market and credit crunch in the United States during 2007. It was also during 2007 that
many finance companies in New Zealand collapsed. As a result of the latter events, there was a
tightening of credit and global economic data deteriorated through until mid-2009 when there became
signs that an economic recovery was underway. However, in late 2010 Psa had a major effect on
horticultural properties (please see Section 13.2). Through 2012, there was little global growth due to
weak data in the United States, the debt crisis in Europe, high energy and food prices, turmoil in the
Middle East and the earthquake and tsunami affecting Japan. Growth forecasts for Australia too were
lowered with there being a slump in retail spending and house construction with the passing of the
mineral resources boom. However, in 2013 the outlook became brighter with the share market
advancing on the back of economic indicators turning for the better and there was investor optimism
about relatively low interest rates continuing with this encouraging some consumers to spend and
businesses to hire and invest.
Then through 2014 and 2015, business confidence strengthened, growth in employment continued,
the number of new dwellings consented in November 2015 reached a 10 year high and were up 17%
from the year before and net migration into New Zealand continues to grow. However, it is now clear
that momentum is beginning to slow from previously strong rates. Downside risks have becoming
more pronounced due to oscillating dairy prices, impetus from the Christchurch rebuild is fading and
sentiment in the forestry sector has weakened. The historically low interest rates currently being
experienced have been caused by weak global inflation and volatility in global financial markets and
there is the possibility that the next adjustment to the OCR will again be downward. Considerable
uncertainty over whether Greece will remain in the Eurozone and a collapse of the sharemarket in
China are also factors currently detrimentally impacting on financial markets world wide.
New Zealand appears to be well insulated to withstand other than a major crisis and many economic
forecasters are suggesting that there is still upside potential for further growth over the next 1 to 3
years.
There continues to be a good supply of accommodation available for lease in all property sectors but
with not the same downward pressure on rentals for existing properties as was evident during 2012
and 2013. New developments are continuing to establish rentals at new higher levels. That, together
with a pick-up in new developments and a stable local economy has resulted in yields strengthening
(decreasing) over the past 3 years and in particular over the last year. We expect that yields will
remain at historically very low levels over 2016.
13.3 Rental Market
We note that the commercial rental market in Tauranga is currently showing moderate rental growth in
most areas. This growth of rental rates has been experienced for the last 18 to 24 months and
followed a relatively flat period.
29
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comThe office market in the CBD has a lower vacancy level than retail, but is still showing only modest
rental growth. Tenancies that provide lower quality space and / or without car parking typically prove
very challenging to lease. The office space within the subject property is towards the high ned of that
provided within the CBD.
14.0 Valuation Considerations
14.1 Floor Areas
As previously noted, the floor areas as measured are at variance with those areas listed in each of the
leases. We have summarised the areas as measured and as detailed in the leases as follows:
Tenant As measured As stated in Difference
floor area the Lease
Level 1
NZ Fire Service 821.80 m2 813.10 m2 8.70 m2
The Property Group 141.10 m2 143.00 m2 - 1.90 m2
Level 2
SILC 563.03 m2 517.35 m2 45.68 m2
Quantum 340.47 m2 316.00 m2 24.47 m2
Level 3
Repco 137.19 m2 110.00 m2 27.19 m2
Vacant 137.37 m2 Not applicable - m2
CNHH 73.60 m2 72.79 m2 0.81 m2
For The Property Group and the College of Natural Health and Homeopathy (CNHH) tenancies, the
difference is quite minor. Likewise the difference on the NZ Fire Service tenancy is not great. For the
remaining tenancies, we note that our assessed exclusive use areas for each tenancy are very close
to the stated floor areas in the lease:
Tenant As measured As stated in Difference
exclusive use
floor area the Lease
SILC 517.39 m2 517.35 m2 0.04 m2
Quantum 312.87 m2 316.00 m2 - 3.13 m2
Repco 111.23 m2 110.00 m2 1.23 m2
It is likely then, that for these examples, the net floor areas prior to an allocation of the common areas
have been used as the stated areas in the lease.
We note that each of the leases state that the recorded floor area is approximate only.
For the purposes of this valuation then we have analysed the leases on the basis of the as measured
floor areas.
30
Our Ref: TAU-83268
++ Local Knowledge, National Coverage 143 Durham Street, Central Business District, Tauranga telferyoung.comYou can also read
