Box Set
Each of these case studies was written shortly following completion of the relevant development or other significant lease-related event. While accurate at that time, in some cases, circumstances have changed, including PFI’s ownership of the property, the identity of the tenant, property specific metrics (including rent) and/or use of the property.
Overview
"He will win who knows when to fight and when not to fight,” advises Sun Tzu in his management best-seller, ‘The Art of War’. For reasons to be explained in a moment, PFI knew the property at 306 Neilson Street , Penrose, well. They also knew that the owners were considering selling and banking the growth in the property’s value since they had bought it some years earlier.
Given such circumstances – more often than not – PFI’s tactic of choice would be an off-market transaction. A quiet chat, no-deadline due diligence, an independent valuation, a bit of an arm-wrestle; deal done. Not to fight, in other words.
But sometimes, the market is your friend. For a vendor, a valuation can only ever be a professional opinion, but offers on the table are facts. Sometimes, there’s no better way to establish what a property is worth than to let the market decide. And so, when the vendor decided to take the property to market, PFI chose to fight.
The property at 306 Neilson Street is just under a hectare of land, with a well-configured warehouse, in Penrose, Auckland. As industrial as it comes. Dating from the early 2000s, the building is well-maintained and in good condition; rated 100% NBS. The warehouse has good stud height and access via multiple roller doors. Neilson Street is the main route through the Penrose/Onehunga industrial zone, with motorway access at the Penrose interchange.
Furthermore, this was a sale and lease-back proposal. Trade Depot describe themselves as ‘New Zealand’s leading online home improvement store’. A sale and lease-back would free up their balance sheet for future plans and they were offering an initial ten-year term. From PFI’s point of view, all very tidy.
But what made it even more attractive was this: the three neighbouring properties are already in the PFI portfolio. Buying this property would complete the box set: PFI would own a 4.49ha industrial estate in four titles.
As PFI General Manager, Simon Woodhams explains, “We were the natural buyers: the only ones able to develop the property further, but in order to get our hands on the property, we had to go to market. Multiple parties presented offers. Ours was cash unconditional. We successfully concluded the deal at $16 million. The initial lease is for ten years, with a commencement rental of $870,000 p.a. The transaction is both earnings- and WALT- accretive from point of settlement. Over the medium to long term, the property can be integrated with the adjacent properties, providing further egress points and yard areas if required”.
There was not a lot of industrial property for sale in China two and a half thousand years ago, but somehow Sun Tzu’s advice about being flexible and nimble – choosing the best tactics to achieve your goal – are as relevant today as they were then.
