The successful completion of 51 Albert Street in Auckland’s CBD underscores the value of private credit funding in-demand assets when other forms of capital cannot. The 43-level, mixed-use development, led by developer 94 Feet and constructed by Icon Construction, includes a 225-key Indigo boutique hotel and 30 high-end residences (the majority pre-sold).
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- After commencing construction in July 2021 and an anticipated completion of March 2024, the project successfully navigated the challenges of supply chain disruptions, Auckland floods, escalating construction costs and cap rate expansion that has plagued project delivery New Zealand.
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- We are seeing signs that New Zealand’s real estate market is beginning to stabilize after three incredibly challenging years for developers. Construction cost growth which exceeded 10% in 2023 has seen its first negative quarter in 12 years, a 1.1% decline (CoreLogic’s Cordell Construction Cost Index).
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- This aligns with what we’re hearing from developers and research analysts that there’s some welcomed capacity in the construction industry with labour costs plateauing and building materials costs easing across structural steel, general hardware and kitchen joinery.
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- These cost declines coincide with the easing of procurement delays and supply chain disruptions which should mark what we expect to be a clear change in sentiment towards the building environment in 2025.
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- The New Zealand market appears to be six months ahead of the Australian cycle and we expect the pressure to ease in the Australian construction environment in 2025.
As loans mature, the Merricks Capital Partners Fund has reduced its total New Zealand exposure by 7%, bringing it down from 35% over the past six months. With the Hotel Indigo expected to be refinanced by a bank in early 2025, this will further reduce our exposure giving us capacity to deploy into the current pipeline of deals in due diligence.
* Source: CoreLogic Cordell Construction Cost Index
