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Bruce rejigs $100m property empire
This article was published on February 2nd 2014 in the Sunday Star Times|Business News. By Greg Ninness
Sheppard and his business partner Greg Rathbun are ramping their involvement in the property syndication and venture capital markets.
So far the pair have put together property syndicates worth around $100 million and in the last 12 months have sourced more than $4m in venture capital funding for local start-ups, which Sheppard described as “a bit frightening” considering the total venture capital raised in this country last year was only around $100m.
But most of the pair’s deals fly well under the radar because nearly all the money raised for them comes from clients of their accounting firm Gilligan Sheppard.
These are mostly wealthy individuals or family trusts that qualify as habitual investors, which means the investment schemes don’t need to register a prospectus, keeping their activities out of the public eye.
But one of their projects has come into public view, the office tower on the corner of Queen Street and Mayoral Drive in Auckland’s CBD, which is a local landmark because of its distinctive blue-coloured glass cladding.
Sheppard and Rathbun put together a syndicate of investors which bought it in 2011 for $19 million (according to valuation company Quotable Value) but as some redevelopment work on it nears completion it has been put back on the market and once sold the syndicate will be wound up.
Left: The tower was reconfigured so the main entrance is on Queen Street.
Sheppard said their property syndicates generally fell into one of three categories.
Sometimes a syndicate would buy a property outright as a long-term investment. That was the case with a mid-rise office building at 350 Queen Street across the road from the Aotea Centre in Auckland.
“That’s a keeper, it’s a lovely building,” Sheppard said.
In other cases the syndicate would form a joint venture with a developer, essentially providing mezzanine funding for a project and filling the gap left by the demise of finance companies. That was the case with 640-unit terraced housing development a syndicate is funding at Flat Bush in Manukau.
And sometimes a syndicate would buy a property that was ripe for redevelopment, such as the tower on the comer of Mayoral Drive. The plans for that building involved creating retail premises along both street frontages, with each shop on its own individual strata title. These were then sold off to other investors. The building was also reconfigured so that its main entrance was moved from Mayoral Drive to Queen Street, where its street frontage is dominated by the retained facade of the former Queen’s Head tavern, which previously stood on the site. That elegant Edwardian facade now provides an impressive main entrance to the building.
However the major challenge was deciding what to do with the office space above, so that it would generate a decent return.
“The development options for the tower were to clean it up and lease it, or strata title it, or turn it into apartments, or a mix of the three,” Sheppard said. “An initial thought was to do it as half apartments and half offices, but it’s probably best suited to a complete hotel/apartment development.”
Dean Humphries of Colliers who is handling the tower’s sale thinks the most likely option would be conversion to “a strong mid-level hotel” of 3.5-4 star standard, but said there were also other options.
“There’s also the opportunity to convert it to student or backpacker accommodation. I was talking to one of the main backpacker operators the other day, there’s still plenty of demand for that,” he said.
“And then it still may be up for residential conversion or even repositioning as offices, but I think it’s most likely to be a hotel.” The tower is being sold with vacant possession, which does not usually augur well for investors’ returns, however Sheppard was confident the sale would provide them with a “comfortable margin”.
Other completed syndications included a development property on Commerce Street in Auckland’s CBD and a retail property in Newmarket.
And at the moment Rathbun was kicking the tyres on a CBD office building with a price tag around $15m which Sheppard described as “probably the best conversion prospect I’ve seen in a long time.”
On the venture capital front, Sheppard said the businesses they were involved with ranged from software companies to one that supplied agricultural crop protection products.
“If it’s a private equity situation there will probably be a management or governance role, so I will normally take a board position,” he said.
“When they are starting up, there are usually no board fees. I find it anathema to draw fees when shareholders aren’t making money.”
However Gilligan Sheppard’s strategy was to grow alongside its clients. “As they [the companies being invested in], grow, assuming they succeed, they will have tax issues, they will have international tax issues, they will have HR management issues, and you end up inevitably with a growing fee base.”