AMP NZ Office Trust acquires prime Auckland CBD redevelopment opportunityMarch 26, 2007 New Zealand’s largest listed investor in prime commercial office property, AMP NZ Office Trust (ANZO), has announced its third acquisition in four months, acquiring one of Auckland’s most strategic and prime redevelopment sites located at 21 Queen Street and formerly known as Downtown House. Executive manager Rob Lang said ANZO is buying 21 Queen Street for $33.38 million and intends to invest an estimated $60 to $70 million of additional capital redeveloping the property to a prime quality. Although details of the redevelopment are currently being finalised, ANZO intends to transform the property into Auckland’s newest landmark office building with a potential net lettable area of 15,500 square metres. The redevelopment will create a market-leading office environment, meet the most advanced building services standards available in New Zealand, and will also incorporate a new high performance glazed façade. “The redevelopment represents an exciting opportunity for ANZO to continue to satisfy market demand for high quality accommodation at affordable rents,” said Mr Lang. “The Auckland core CBD office market presently has a shortage of prime quality stock, with vacancy rates at historical lows. “This, coupled with forecast demand from major CBD office tenants for more than 90,000 sqm of space during 2009 and 2010, makes ANZO’s investment sensible and timely.” Mr Lang noted that some of ANZO’s current tenants are also looking for additional space. ANZO’s four existing Auckland properties are between 98 and 100 percent occupied and 21 Queen Street will renew ANZO’s ability to meet the requirements of major tenants. “In addition to high-quality office accommodation and very real environmental benefits, a key attraction for tenants will also be the occupancy cost. The existing value inherent in this property means ANZO is able to offer rents some 25 percent lower than current rents for prime accommodation." Mr Lang said that ANZO is aiming for the highest possible rating for environmental benefits under the New Zealand Green Star system. “This redevelopment is available to tenants from early to mid 2009, although there is some flexibility with respect to delivery depending on tenant requirements,” said Mr Lang. While ANZO is aware of the other developments in the market, such as the BNZ Tower at 80 Queen Street and redevelopment of the Britomart precinct, Mr Lang said this acquisition and its redevelopment represents the only prime space expected to become available in the core Auckland CBD before the third quarter of 2009. It also enjoys a very strong and strategic central location when other options are limited to fringe developments in areas such as Quay Park and the Viaduct. Located at 21 Queen Street, the building rises above the Downtown Shopping Centre and is directly opposite the Britomart transport centre and close to other transport links and the waterfront, as well as the greater Britomart precinct. The building is linked by covered walkways to ANZO’s PricewaterhouseCoopers Tower and Quay Tower complex. Air New Zealand moved out of the building late last year, leaving it 90 percent unoccupied and the present owner has begun internal demolition work. Mr Lang drew a parallel with ANZO’s recent investments in Wellington’s Pastoral House and No.1 The Terrace. “These projects were completed during 2005 and 2006, were highly sought-after by tenants, delivered healthy returns to unit-holders and have become valuable long-term investments for ANZO,” said Mr Lang. “Opportunities of that kind have been exceptionally rare for a number of years but we see this property as a similar proposition that allows us to exploit our expertise, add value to real estate and to meet market demand.” The redevelopment will enhance returns to ANZO’s unitholders, as well as further diversifying its tenant base and rebalancing its geographic weighting, and also complements ANZO’s Quay Tower and PricewaterhouseCoopers Tower holdings. Although ANZO’s plans are currently being finalised, Mr Lang said the capital expenditure required to complete the redevelopment is anticipated to be in the vicinity of $60 to $70 million, with the completed building forecast to command an investment value over $105 million. The project’s internal rate of return and yield on cost is expected to be in excess of 10 percent and 7.0 percent respectively. “Risk management is central to ANZO’s approach to successful development and ANZO expects to secure a fixed-price lump sum contract for the redevelopment and engage its preferred and experienced suppliers, many of whom have worked on ANZO’s other successful projects including PricewaterhouseCoopers Tower, as well as the Pastoral House and No. 1 The Terrace projects,” Mr Lang said. The redevelopment will be funded by bank debt, with interest costs capitalised against the project during the development phase, meaning earnings and distributions to unit-holders will not be affected during the development phase. A formal launch of the redevelopment will follow shortly and more detail, including confirmation of expected returns, is expected to be available in May 2007. Settlement of the property acquisition is scheduled to take place on May 4, 2007. The acquisition was brokered by Lindsay Jackson of CB Richard Ellis, who commented that the location of the property represented a strategic opportunity for potential occupiers and when the redevelopment is complete will be of significant benefit to retailers in the surrounding area. The acquisition follows ANZO’s purchases of Wellington’s Deloitte House for $57.42 million, which settled last Friday and Wellington’s AXA Centre for $39.5 million in December 2006.
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