Billionaires buy Auckland apartments deemed unsafe to occupy

The Zone apartments, 3 Edinburgh St, Auckland Central. Photo / OneRoof

A company owned by Auckland's multi-billionaire Friedlander family has bought a defective 12-unit leaky apartment building for just over $4 million to expand its central-city holdings.

Samson Corporation's name is now on the title of The Zone, 1-3 Edinburgh St off Karangahape Rd, where owners went to court to allow them to sell all the unit titles as one.

The building had become unsafe to occupy, the court found.

Sir Michael Friedlander established Samson Corporation decades ago to become one of Auckland's largest landlords.

It has at least $2b of property, with large suburban holdings across the city.

Marco Creemers, Samson's projects director, said today: "We hope the previous owners got some relief from our purchase."

He was referring to owners who instead of fixing their places, like many others did, decided to quit the building and sell as one entity.

Sir Michael Friedlander of Samson Corporation. Photo / supplied

The Zone was a warehouse built in the early 1950s and later converted into apartments. Problems meant it was no longer safe for occupation and owners faced repairs estimated at around $8m.

Samson owns retail property at 478 Karangahape Rd, which backs onto 1-3 Edinburgh St. The Karangahape Rd property is a large holding.

Auckland Council's valuation of 478 Karangahape Rd combines it with 518 Karangahape Rd, putting a $10.4m capital value on the titles which are 1995sq m with a building floor area of 1784sq m.

Roger Levie, Home Owners & Buyers Association chief executive, said the association had been managing The Zone's body corporate and was closely involved in the sale.

The building was sold for just over $4m and the result was an excellent one for the owners because it saved them from having to pay for huge repairs, he said.

Marco Creemers of Samson Corporation. Photo / Steven McNicholl

"We're going to see a lot more of this type of activity on older and leaky apartments in future. I know of at least four others and I'm working with body corporates who are in a similar situation," he said.

Owners of defective high-rise apartments were less likely to sell like the owners of The Zone because they would not benefit as much as owners of smaller blocks, Levie said.

"It's generally more viable in a terrace/townhouse project with a larger piece of land to do this than you might find in a high-rise multi," Levie said.

The Zone apartments had not been sold for top dollar. Levie said the first unit had been sold for just $270,000 in 2001. The most recent purchase was in 2015 for $600,000.

"Some people will have broken even and others will have still made significant losses but still end up in a better situation than if they had remediated the building," he said.

Roger Levie whose association helped The Zone owners out. Photo / Steven McNicoll

"Some owners didn't end up with sufficient funds from the sale to fully repay their mortgages. But this is a good option for older buildings which would have cost so much to fix," Levie said.

Tim Rainey and Joanna Pidgeon acted for the owners of The Zone who went to the High Court to get orders allowing them to sell the entire property.

Dentons Kensington Swan said The Zone had significant weathertightness defects. The owners got quotes that estimated it would cost $7.5m and $8.5m to repair, it said.

"This was considered cost-prohibitive, and the body corporate of The Zone had passed a resolution to sell as a redevelopment opportunity," the lawyers noted.

Owners therefore applied to cancel the unit plan and sell the land, with the division of proceeds between the owners.

A decision was delivered on February 9 this year.

Rainey says about 150 leaky Auckland apartments would be sold unrepaired because fixes are too expensive and land has become so valuable.

He knows of many smaller apartment complexes where remediation is cost-prohibitive so owners may well simply decide to sell without fixing.

The value of the land will net them so much due to the real estate market having risen so much in recent years, he said. The owners will then be able to buy elsewhere, he said.

Tim Rainey represents many owners of defecive buildings. Photo / supplied

"Often the value of the land is so high that this makes sense," Rainey said of the drastic option which he sees as more palatable for many than spending tens of millions of dollars repairing places.

"Some are on their second or third," he said of repair attempts which themselves had failed.

Dentons Kensington Swan canvassed the issue of a body corporate facing significant remediation and considering selling their apartment complex as one property.

Remediation projects often overrun in time and cost. Some recent examples went over budget by tens of millions of dollars, the lawyers said.

"One option is the redevelopment of the site with collapsing of the unit title structure and sale of the land and airspace. This may be an attractive commercial option, particularly where there is significant value in the site as a whole and/or the costs of repair are uneconomic," the lawyers said.

A number of successful applications had been made to the court to achieve this, including The Zone case, the law firm said.

The Zone owners had hoped to be able to sell without the court's involvement but three owners declined to execute a deed of arrangement so court action was necessary.

The court decision noted the ex-warehouse built in the early 1950s was later converted into apartments. Its leaky issues meant it was no longer safe for occupation.

Rainey also cited The Ridge in Hargreaves St as a building where repairs had started but where owners were considering options.