Argosy buys city landmarks
Listed commercial property company Argosy Property is buying two landmark Wellington office buildings for $93 million, and will spend another $86m upgrading them.
Argosy's NZX listed shares went into a trading halt yesterday as the company conducted a book- build with institutional investors for $80m of a $100m capital raising to fund the purchase.
The remaining $20m will be sought from existing Argosy shareholders over the holiday break.
The office building properties at 15 Stout St and 7 Waterloo Quay both have existing leases, to an as- yet-unnamed government department and existing NZ Post tenant respectively.
Argosy said it would pay $33.2m for the Stout St property and $60m for the NZ Post building, and spend $46.6m and $40m, respectively, upgrading the properties.
Maurice Clark, of McKee Fehl Construction, bought the Stout St property from AMP Capital Properties in January 2011 for an estimated $14m, $11m below rateable value.
He said at the time that he was taking "a bit of a gamble".
But Clark said the gamble had now paid off for him, despite having to spend plenty of money on resource consents to refurbish the heritage building, "gutting" it, redesigning features such as the central atrium, and marketing it to potential tenants.
Clark said he did not have to do any earthquake strengthening because he had proved that the building's original 1939 construction was 180 per cent compliant with today's seismic standards.
Argosy Property chief executive Peter Mence said Wellington's commercial property market was "two-tier" and that Argosy was only looking at the tier of quake-resistant properties located in the government precinct.
When asked whether the level of earthquake strengthening was still a problem in Wellington, Mence said: "I haven't done a full survey in the market but a lot of people have and suggest there's quite a lot of work to do down there."
The NZ Post building on Waterloo Quay, which includes a separate lease for Kiwibank's headquarters, was "arguably" 100 per cent compliant with the earthquake code but further improvements would put that beyond doubt, said Mence.
NZ Post said its divestment of the building was in line with its strategy to release capital from corporate properties.
Argosy said the Government had signed a 12-year lease on Stout Street, while Kiwibank had a seven-year lease and NZ Post had a long-term lease with a right to review after five years.
Stout Street would remain empty for about another 18 months while upgrade work was carried out. The property adjoined two other Argosy properties: the TSB Tower, which houses the Department of Internal Affairs, and Te Puni Kokiri House.
"It's a bit of a landmark, somewhat iconic, and the location's very strong and obviously for us, with buildings on two of the adjoining boundaries, there are some efficiencies for us from a management and services perspective," Mence said.
"I would expect that would work reasonably well for the Government in terms of that nodal location and the ability for Government departments to share common services."
Mence and the Argosy board were confident the capital-raising would succeed.
The former Defence House in Wellington's Stout St has been empty for about five years.
The nine-storey block has been vacant since the Defence Force and Security Intelligence Service moved to new offices in Aitken St in 2007.
The building featured on the opening credits of the television comedy series Gliding On about the public service.
It was built in 1939 and when it was opened in 1940, it was the biggest office building in New Zealand with a floor area of 2 hectares.
It has a ground floor of Coromandel granite. It was last refurbished in 1989.
In 2011 it was bought by Maurice Clark, managing director of McKee Fehl construction company, who hoped to refurbish it for a new tenant such as a government department or hotel chain.
It was rumoured last year that Clark bought it from AMP Capital Properties for $14 million - $11m below its 2009 rating value of $25m.
The Stout St property has now been sold to Argosy for $33.2m and Argosy will spend another $46.6m refurbishing it. Argosy is also buying NZ Post's headquarters on Waterloo Quay for $60m, with another $40m planned for upgrading.
The Dominion Post