Investors' return in doubt as vision for Albany fades

Investors who put $20 million into the first stage of Albany's $500 million expansion three years ago thought they were funding multi-building projects on three large slices of land.

As it turned out, little was built and promises to earn money from getting rent and revaluations on buildings have turned sour.

Instead of developing a mass mini-city of shops, offices, a retirement village and a hotel, Albany City Property Investments' vision has amounted to little.

Only one office building rose on the three blocks of land between the Northern Motorway, Westfield Albany and the North Harbour Stadium.

The scheme for a new northern Auckland hub was launched with some fanfare in 2006 when property boss Garry Looker unveiled a scale model of his vision. That was during the real estate boom when people were highly confident about New Zealand real estate and so the business issued an investment statement to raise $20 million and outline big plans for the land bank - which it does not own.

Peter Brook, ACPI's chairman confirmed yesterday that the public's $20 million was at risk because so much had gone wrong. "I guess it is. Yes. We went out with that offer where we set out very clearly what the investment was, so investors should be under no illusions," he warned of the high-risk scheme, and instead of a mini-hub only one building rose as a result of the ACPI scheme: a four-level office block where IT business Zeald is based, Brook said. Only part of it was leased. Just last week, 350 investors had letters from the business saying it was in trouble and might not be able to pay the June 30 quarterly distribution.

The property downturn has hammered the scheme hard and resulted in buyers not settling deals on contracts, valuations sinking, and the scheme's debt-to-equity ratio blowing out to such an extent that the scheme was severely short of cash.

Westpac poured millions into the scheme too but did that on the basis that ACPI's debt did not exceed 55 per cent of the value of subleasehold interests and other group assets.

Westpac ranks ahead of the bondholders. ACPI has to pay leasehold rent on land whether it is developed or not and its 45-page investment statement mentioned Environment Court action on land zonings which could also affect valuations.

Property consultancy and agency CB Richard Ellis has noted that valuations of bare or undeveloped land have been sliced in half lately.

Peter Brook wrote to investors about the combination of problems which had "adversely impacted on ACPI's efforts to extent its existing bank debt arrangements and available facility limit" .

The trustee, NZ Guardian Trust, has extended a lifeline. ACPI has until Monday to put matters to rights but Brook said he was "uncertain" if the quarterly interest due on the $20 million could be paid to bondholders.

ACPI's investment statement drew investors by showing plans for three projects on 12.8ha leasehold land between the Northern Motorway, Westfield Albany and North Harbour Stadium. The three leasehold sites are:

The largest 5ha site is to get a hotel, retirement village, residential and mixed-use on a site for land off Don McKinnon Drive and Munroe Lane. That plot has an "expected achievable development area" for new buildings of 100,000sq m to 150,000sq m. Buildings could rise up to about 10 levels.

A 4.7ha plot alongside the Northern Motorway is earmarked as a 55,000sq m business park of low-rise buildings up to 17m high.

A 3ha plot between Don McKinnon Drive and the Northern Motorway is tagged for an extensive 60,000sq m of shop and office buildings rising 30m near the 70,000sq m Westfield Albany. Colliers International valued those three sites at $65,240,000. But ACPI got a bargain and paid only $63 million.

ACPI does not own any of this land but said it wanted to "acquire sub-sub-subleasehold interests expiring on June 24, 2026, followed by perpetually renewable sub-subleasehold interests."

The area could become a suburban centre "similar in scale to the Auckland centres of Manukau and Botany Downs or the Sydney centres of Chatswood, Bondi Junction and Paramatta," ACPI said.

"The group intends to develop a diversified portfolio of commercial income-generating properties.

"The company's investment strategy is to establish a property investment portfolio over a three- to five-year period through the development of buildings and associated facilities on the Albany land land in due course other property acquisitions.

"The initial focus of the group during the term of the bonds will be on organic growth of the portfolio through the construction of income-generating buildings on the Albany land and the retention of those buildings as portfolio investments." Under the heading "market risk", ACPI 's investment statement flagged the possibility of financial disaster. "The property projects may perform badly or be revalued for a loss due to market conditions or poor operating performance so that returns to the group are negative.

Under the heading of "project risk" the investment statement said this meant planning risk, construction risk in terms of cost, delays and bad weather, default risk from construction contractors and tenants, market risk from falling property values, leasing and rent risk.

One ACPI investor said he had been bitten three times: on Hanover, Strategic and now Albany. "At 57 years old it is certainly testing seeing investments collapse but that is the risk we all take and I certainly would not invest what I could not afford to lose. This still hurts though."

In May 2007, NZX granted a waiver to ING Property Trust's manager allowing it to avoid needing unit-holder approval in order to buy leasehold Albany land.

At the time, Symphony Group owned half the trust's manager.

ALBANY SCHEME

Albany City Property Investments' offer:
* Prospectus registered November 2006
* $20m bond offer opened November 2006
* Bond offer closed March 2007
* First interest payment March 2007
* $20 million due to be repaid December, 2009
* Scheme allowed extension to December 2011
* Might not be able to pay interest on June 30

Who put what in:
* Symphony/Valad/Auguste: $29.6m
* Retail/public investors: $20m
* Westpac Bank: $24m for leasehold land
* Bank: $5m overdraft

Those behind the Albany scheme:
* Symphony Projects: Colin and son Adam Reynolds, Garry Looker, Gary Noland
* Valad Property Group: Associated with ASX-listed Valad
* Auguste Holdings: Wellington's Kevin Podmore, Mike O'Sullivan