No happy returns from real estate

By ANNE GIBSON property editor

Stay away from property investment, says Ed Schuck, a senior consultant with global investment advisers Frank Russell in Auckland.

He knows property well. Having worked in the sector all his life and lectured on the subject at the University of Auckland, he transferred his skills two years ago to a firm which advises on total assets of $15 billion.

Large superannuation and life insurance funds pay for Frank Russell's view on property, wanting to know what sort of returns they can expect from investing in the sector.

Schuck's advice - based on his years of expertise - is pretty much for substantial investors to steer well clear of real estate.

"Some of my guys wouldn't touch property with a 10-foot barge pole," admits Schuck.

A few years ago, big life and superannuation funds were religious about a three-way split in their investments: a third of their money went into shares, a third into cash and property.

That was called a diversified fund.

Nowadays, many of the big funds here are turning their backs on property altogether and firms such as Frank Russell are telling them to look overseas for better returns.

"I tell them to forget about property altogether because the returns are not there," admits Schuck.

"Even putting 5 to 10 per cent of the funds into property won't necessarily increase the value of a portfolio."

Besides, the investment is management-intensive and the market here is so small that the completion of one major office block can soak up all the high-paying tenants at the top end of the market, he says - buildings such as the PricewaterhouseCoopers Centre on Auckland's waterfront, due to be topped off this month.

Auckland is not exactly lacking development sites either.

One of the largest pieces of inner-city vacant land - illustrating the industry's lack of lustre - is the prominent site on the corner of Albert and Victoria Sts in the CBD.

Chase Corp had big plans to move the central-city Farmers from its Hobson St site across to former Royal Hotel site.

The site was levelled, but so was Chase.

Nearly two decades later, this vast piece of inner-city land remains vacant, now a carpark and Sky Scream, an adventure tourism ride.

The property industry remains embarrassed by this testament to its lack of fortune.

Its owner, Indonesian-controlled Colwall Property Investment, has no plans for the site, says property manager Michael Webb-Speight. The money which could be earned from building on the site is not enough to justify the investment.

"We have looked at all sorts of proposals for the site and they simply don't stack up."



Nor have all the Auckland developments which started been finished.

Another eyesore is the partly-built Hobson St structure in front of the Central Police Station.

The building, near the motorway entrance, was bought by Auckland developer David Gaze, who promised action when he bought it in December 1999.

Still, it sits, unfinished and decrepit.

But surely the new top-quality office blocks have done well?

Not entirely. At least some space is still untenanted in the eagle's nest - the very top levels of the Royal & SunAlliance Building between Shortland and Fort Sts.

Although the building is 95 per cent leased, parts of levels 37 and 36 are not yet leased.

At last count, the building was dropping in value, from $217.5 million if fully leased, but knocked back by valuers CB Richard Ellis last year to $207 million.

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