Dominion builds on legacy of Fletcher

By ANNE GIBSON

Fletcher Property, once one of New Zealand's largest real estate businesses, is being wound down without a fuss.

The death of Fletcher Challenge has taken with it a once-great property empire, Fletcher Property, known until 1996 as Challenge Properties. It incorporated St Lukes Group, which was taken over by international shopping centre conglomerate Westfield.

Paul Duffy, former chief of Challenge Properties, estimated Fletcher once controlled close to $1 billion of real estate, "but now Fletcher Property would be lucky to have a portfolio worth $5 million".

Fletcher Property manager David Wood agrees with Duffy's estimates, but says sadness is not his overriding emotion when he considers the demise of the former Fletcher Challenge real estate conglomerate.

"More pragmatism and recognition that capital is a scarce resource," he says. "It just reflects what has happened with Fletcher Challenge."

For Duffy, capital is not an issue these days. Last year he became chief executive of Dominion Funds, the property investment arm of Doug Somers-Edgar's Money Managers empire.

He is in charge of $382 million of property, split into syndicated funds into which Money Managers' mainly elderly clients invest.

Dominion claims to be the largest locally based property syndicator, one so attractive that Duffy is about to buy a shareholding.

Duffy has shaken up Dominion, buying $45 million of property but with plans to flick $30 million worth to re-weight the portfolio. He wants a different mix, weighted more towards Auckland and Wellington industrial and office properties.

When Duffy went to Dominion last year, he took one of the last development opportunities Fletcher Property had on its books - stage two of The Point apartments in Auckland's Viaduct Basin.

At Fletcher Property, Duffy had been in charge of building The Point on land leased from Viaduct Harbour Holdings to create a desirable apartment block on the waterfront.

But behind The Point is a large piece of bare land on which Dominion will develop the second $29 million block. Multiplex Construction is about to start building, and Duffy was this week boasting of 10 per cent deposits received on 24 of the 74-unit block.

Parnell Point Properties, established by Dominion to develop the former White Heron hotel site and later switched to financing a Farmers distribution centre in Hornby, Christchurch, will partly pay for the block.

A meeting is planned for mid-November to vote on a name change for the Parnell fund.

But Duffy's plans for Dominion extend well beyond the Viaduct Harbour. With Money Managers' clients enticed to put 18 per cent of their investment portfolio into property, Duffy can again build up a large real estate conglomerate. Understandably, he is keener to focus on the future than the past. The Fletcher real estate empire was at its peak in the 1960s and 1970s when it built several shopping centres and office buildings - Downtown Shopping Centre in Auckland, the Prudential Plaza in Takapuna and the Ministry of Commerce building in Wellington.

Some of its developments were sold to SEABIL (NZ), now Trans Tasman, for more than $119 million in 1994.

By the early 1990s, Challenge Properties was divided into two groups - one looking after shopping centres and the other looking after commercial property. A 1992 publication said Fletcher Challenge had net property investments of $520 million in New Zealand, consisting of $130 million in retail shopping centres, $270 million in commercial office buildings, $60 million in industrial properties and $60 million in mortgages.

It was Challenge Properties that saw the potential of wrapping its retail centres into one entity, which it named St Lukes Group after its flagship shopping mall in Auckland.

St Lukes Group was floated on the sharemarket in 1993 when Fletcher Challenge separated its shopping mall operations from the group, leaving Challenge Properties to own and manage the rest of the then-vast Fletcher Challenge real estate empire.

At the time, the St Lukes float was New Zealand's second-largest, says sharebroker Ord Minnett, raising $345 million. The assets were 10 shopping centres, mainly in the Auckland region and generating more than $850 million in 1992-93 in retail sales.

In 1994, St Lukes saw the potential for Albany to become important as a growth centre for Auckland and developed and built one of New Zealand's first bulk retail centres on a 25ha greenfield site, part of a 126ha block of former Housing Corporation land.

At the time, St Lukes managing director Paul Preston acknowledged that the Albany centre was modelled partly on the successful bulk retail stores at Wairau Park.

The Downtown Shopping Centre is another Challenge Properties building. In 1993, Challenge announced it would spend $1.1 million refurbishing the ground floor. It was from this building that Westfield established itself in New Zealand, moving into the St Lukes Group headquarters.

Last year, Westfield moved to the former Mercury Energy building in Newmarket, which it intends to demolish for a $450 million mall.

Graeme Bringans was appointed managing director of Challenge Properties in March 1992 but died soon after being appointed. Duffy then took over.

The last extensive redevelopment opportunity for Fletcher Property was its hopes for Lake Park, a suburb to be built in the old Winstone Quarry in Mt Wellington.

Stuart Kendon of Fletcher Property believed Auckland City Council's town planning chiefs supported the plan change necessary to build the 104ha housing estate, but he was knocked back late last year.

Kendon is to leave Fletcher Property at the end of this year.

Fletcher Property sold the quarry to Landco Holding.

Wood believes Fletcher Property will live on for a time, but with a reduced staff and probably in name only. It is going out with a whimper, not a bang.

Dominion Funds