Cost rises blamed for apartment rent pain

From 2009 to this year, operating expenses for Bianco off Queen rose 140 per cent and rates rose 157 per cent, the manager said. Photo / NZME.

Investors in CBD's Bianco off Queen are the latest to be told their 'guaranteed' rent returns are ending.

A 157 per cent five-year Auckland Council rates rise and a 140 per cent operating costs increase have been blamed for the axing of guaranteed rental returns on a big city apartment block.

Investors in Bianco off Queen in White St in the CBD have had letters from building manager Bianco Accommodation explaining that the guaranteed payments have ended because of a mix of circumstances.

A Singapore-based investor who bought into the block partly for that guarantee doesn't understand how it cannot be fulfilled. But his complaint is one of many over the years against "guaranteed" returns.

The terms of such guarantees can be changed and often are finite and this can come as a shock to investors who believe they have a cast-iron guarantee or do not know the true costs of running buildings.

In 2009, disgruntled Sydney-based investors in Wellington's $100 million Holiday Inn formed an action group after their guaranteed rent failed to materialise.

In 2007, owners of apartments in Auckland's $74 million Hyatt Residences faced a 99 per cent body corporate fee rise, hit by climbing costs and the end of guaranteed rent returns. That same year, investors in Auckland's Heritage Hotel apartments lost their guaranteed rental returns as the company that owned the units wound up with a projected loss of nearly $3 million.

In 2001, guaranteed 9.5 per cent rental returns in the high-rise Metropolis expired and hotel operator Ascott Metropolis said investors could get a bill instead of a cheque.

The Singaporean investor said he was promised a 7 per cent return but in August found it was ending.

"We are unable to continue to make the guaranteed payments under your lease with Bianco Accommodation," read the letter, referring the investor to Shiraz Management and Sajad Bassam, Bianco Accommodation general manager.

Although all units in the block are sold, the primary funder was not fully repaid. From 2009 to this year, operating expenses rose 140 per cent and Auckland Council rates were up 157 per cent, the letter said. It also blamed the Christchurch earthquakes and the global financial crisis.

Read documents closely: FMA
The Financial Markets Authority has advised people considering properties with rental guarantees to study and consider documents closely before investing.

Simone Robbers, the authority's head of primary markets, said deals to buy into such schemes must provide investors with full details of their risks and potential rewards.

"Offer documents should help investors make informed investment decisions by providing them with information that clearly discloses the benefits and risks associated with the particular offer."

Guaranteed?
Investors have complained of "guaranteed" rent returns or income expiring/not continuing at:
*Bianco off Queen, Auckland
*Holiday Inn, Wellington
*Hyatt Residences, Auckland
*Heritage Hotel company, Auckland
*Metropolis, Auckland