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Commercial & Agri New Zealand

Commercial & Agri New Zealand. Commercial Property Earthquake Resilience. Presented By : Bill Marshall Regional Manager Property Finance. 08 August 2012. Key Issues for TENANTS. Seismic Strength : Is it economically viable to get to 67% NBS?.

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Commercial & Agri New Zealand

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  1. Commercial & AgriNew Zealand Commercial Property Earthquake Resilience Presented By : Bill Marshall Regional Manager Property Finance 08 August 2012

  2. Key Issues for TENANTS • Seismic Strength: Is it economically viable to get to 67% NBS?. • Works Programme: Extent of works required and project timelines? • Business Interruption: Disruption on Tenant's business? Remain on site or relocate temporarily? • Costs: To get to 67% NBS what are financial implications for tenant? Who pays Lessee costs i.e. temporary relocation if required. • Existing Lease: Consider how engineering, building and financial aspects effect existing lease/tenure etc. • Tenants in high risk locations understand 33, 67 & 100% of NBS. • CCC: closing down buildings with <33% NBS residual capacity. • Buildings at <67% NBS have Critical Structural Weaknesses

  3. NZSEE Grading System

  4. Key Issues for LANDLORDS • Tenant flight: to higher rated buildings, even if compliant. • New leases: some including break clauses if natural disaster occurs. No access to premises within perhaps 30/60/90 days, lease will cease. • Insurance: Loss of Rentals cover may be reduced if tenants vacate. • Earthquake-prone Assessment: what level of NBS? • Unsatisfactory assessments: (<67% of NBS) Establish Cost and Process for remediation. • Illiquid: Properties at <67% NBS may be difficult to sell or trade.

  5. Key Issues for FINANCIERS • Earthquake-prone buildings: some identified buildings will require remedial works beyond the means of the owner. • Impact on Financial Covenants: Potential covenant breaches Interest Cover and LVR due to tenant flight (vacancies) and Remediation Costs may impact risk profile. • Property values reduce: High risk localities and properties. • Insurance continuation: becomes difficult/expensive for non-compliant properties. More expensive generally. • Older commercial properties: Seismic issues makes financing harder. • ANZ Approach: Every case on its merits.

  6. Key Issues for FINANCIERS

  7. SUMMARY • Opportunity for Landlords to front foot issues and gain some advantage. • Some Earthquake-prone buildings are already being marketed for sale as vendors try to exit. • Tenants, as responsible employers, may not consider leasing space in buildings with less than 80-100% of NBS resilience. • Two thirds (or 67%) of NBS may become the de facto target. • Insurance cover is becoming more difficult to secure or very expensive for non-compliant buildings. • A two tier market is emerging in certain locations driven by Tenant demand and Investment demand for quality (80-100% of NBS).

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