The announcement from Tainui Group Holdings (TGH) last week that they would be looking to sell half of The Base will have taken some by surprise. With Westfield Chartwell and part of Centre Place also up for sale, all three of Hamilton’s major malls are now being marketed for sale at the same time. While the timing may seem odd, this latest move by Tainui may well reflect the changes in the property landscape.
Over the years, TGH has grown and evolved. Today, it is a diversified company with more than $1 billion in assets.
These include a number of hotels, various ground lease and other property interests, The Base and – significantly – a major landholding at Ruakura, which will be developed into an inland port (and housing, and industrial facilities…) in the decades to come. That’s certainly a lot for any one company to handle, and it’s not surprising that TGH would want to free up some capital to get things moving at Ruakura, and perhaps to diversify their asset base away from property.
The Base is New Zealand’s largest retail centre by floor area, including a substantial LFR centre, an enclosed shopping mall and a Dress Smart outlet centre. Even so, there’s still plenty of room to expand – at least seven hectares of undeveloped land, plus at-grade parking which could someday be developed more intensively.
Any potential owner is not just buying into an established retail centre, but a development opportunity, which could go well beyond just retail.
It has taken The Base many years to get to this point. The first stages opened in 2005, with planning starting several years earlier. The Warehouse, an anchor tenant for the first stage of the centre, was also a 50/50 joint venture with TGH. This arrangement lasted until 2007, when TGH bought out their partner to take 100 percent control. Today, the buildings at The Base are owned by Tainui Group Holdings, with the land leased to TGH by the Māori King. No doubt the details of that lease, and the formulas for rental reviews and so on, will be a factor in what the centre is perceived to be worth.
In the last few years, leasehold property has come in for a lot of criticism. However, the reality is that many developments in the years to come will be on leasehold land – the underlying sites may be owned by iwi companies, churches, councils, ports or other interests.
Much of the stigma around leasehold comes from uncertainty. The “ground rent” is reviewed every 5, 7 or 21 years, but there can be a wide range of views about what the rent should be. These debates are often played out between valuers at arbitrations, which can be an expensive and lengthy process. In the meantime, neither the lessee nor the lessor can really plan for the future. These models now seem a bit outdated. In Auckland, we’re now seeing leasehold sites like those at Wynyard Quarter having 150 years of ground rent paid up front, and capitalised into the purchase price. This gives certainty to both parties, and indeed Willis Bond’s 132 Halsey and Wynyard Central projects have been able to attract plenty of off-the-plan buyers.
If Tainui and any potential buyer can work out a deal that satisfies both parties and overcomes the hurdles, it could very well form a blueprint for other iwi looking to partner with other property companies in the future.
Likewise, a successful model could also be applied by many other institutions across New Zealand. Likewise, the questions of the best way to sell off part of a business while still retaining some control, and the most appropriate avenues for property companies to diversify into, are also important ones.
With a Masters of Commerce degree in economics, John Polkinghorne is a property professional with vast experience in New Zealand’s commercial property industries. He provides retail and property consultancy and analysis including location strategies to many New Zealand property owners, developers and city councils.