By ANNE GIBSON
Rising interest rates and a downturn of confidence in the property investment market has torpedoed a $51 million deal to sell Auckland's Hilton Hotel on Princes Wharf.
David Henderson's Kitchener Group was to sell the hotel to an investment scheme marketed by Bayleys Real Estate and offered by St
Laurence Group.
St Laurence investor services manager Jeanette Bullen said a turning property market had dented confidence.
"There's been a lot of talk about property flattening out and the market has changed as interest rates have started to go up," she said, adding that it was the funder's first failure.
This week's warnings from the Reserve Bank and FundSource against risky high-yielding property investments had not helped, she said.
On Monday, FundSource urged investors to be cautious about putting money into structured debt securities, saying the products had only an illusion of safety.
Then the Reserve Bank warned investors buying bonds in finance companies to tread warily, urging caution about investing in companies lending to property developers and saying investors in these firms could face losses.
The central bank said a drop in the property market could hurt the finance firms that had backed more speculative developments.
Bullen said such announcements had an impact on people's confidence.
"People listen to that kind of thing and act, or in this case don't act. But this was also a complicated property investment for people to understand," she said, citing a chain of leases relating to Princes Wharf, with the seabed owned by the Crown, the under-wharf and deck structure owned by Ports of Auckland, the wharf leased and the building itself leased to the hotel chain.
St Laurence's attempts to buy Trans Tasman Properties' Finance Centre in Auckland for $101.15 million failed last month after its due diligence expired.
But, yesterday, the $29.7 million Hilton proportionate ownership scheme was chopped, with less than half the funds needed for a deposit to allow the offer to go unconditional.
Plans were to raise the equity via the scheme and fund the outstanding $26 million via a loan from ASB Bank.
But the Hilton Hotel Building Proportionate Ownership Scheme's failure has been blamed on changing sentiments towards property investments.
To succeed, St Laurence and Bayleys needed to raise $9.7 million, but St Laurence managing director Kevin Podmore said less than half that came in.
Hilton investors were promised an annual 9.25 per cent if they stumped up $25,000 for six years, lured by a promise to get their interest payments in quarterly instalments.
CB Richard Ellis valued the Hilton at $52.4 million.
Podmore said timing was against the offer, which was drafted on August 20.
St Laurence said last month that it wanted to buy the Hilton for $51 million and planned to fund the purchase through the scheme, which Bayleys would market via its various outlets.
Investors were offered 1188 shares in the scheme at $25,000 each, raising $29.7 million. The balance of the purchase price would be met with secured borrowings.
Podmore said the five-star, 166-room hotel would be bought fully leased to hotel manager Princes Wharf Hotel.
The offer would not proceed in its present form. Details had been pulled from St Laurence's website.
The Property Council's Auckland president, Patrick Fontein, said rising interest rates were "stabilising" continually improving yields from commercial property. But many investors had factored the interest rate rise into their financing and anticipated more increases.
Macquarie Goodman Property Trust chief executive John Dakin said rising interest rates should depress units and shares in the listed property sector but this was not happening.
He said Macquarie's units were trading at $1.06, up from $1 in early September.
"Generally, investor sentiment is pretty strong for well-diversified good quality property with a strong tenant."
Deal structure
* $9.7 million was needed for an initial deposit to allow the deal to go unconditional. All up, investors were asked to contribute $29.7 million. ASB Bank was to lend another $26 million.
* Within that was $4.7 million in costs, bringing the amount raised to $55.7 million. Less than half the $9.7 million deposit came in.
* That led to the deal being axed.
St Laurence
Bayleys
By ANNE GIBSON
Rising interest rates and a downturn of confidence in the property investment market has torpedoed a $51 million deal to sell Auckland's Hilton Hotel on Princes Wharf.
David Henderson's Kitchener Group was to sell the hotel to an investment scheme marketed by Bayleys Real Estate and offered by St
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