Waterfront Auckland backs ground rent deals

Wynyard Quarter apartments come with a long lease.

Pre-paid ground lease removes uncertainty for home owners, says Waterfront Auckland.

Waterfront Auckland has defended its Wynyard Quarter leasehold deal where apartment owners can pre-pay ground rent for 125 years.

John Dalzell, chief executive, said his organisation was well aware of trouble with traditional residential ground leases so had mitigated the burden and uncertainty by allowing apartment owners to pre-pay the ground rent.

Hundreds of apartments will be built on the leasehold land and a Herald reader questioned the pre-pay deal, asking how the ground rent would be calculated.

"This seems a remarkably generous arrangement in these times of continually increasing land values and it would appear to be a very generous subsidy to what will be, or should be, an attractive sought-after premium housing area," said reader Bill Rayner.

Dalzell said Waterfront Auckland had structured the 125-year deal to emulate characteristics of a freehold title.

"Paid up front as a one-off fee with no further payments, this removes all uncertainty around rent reviews or market increases common in traditional leasehold agreements. The term is purposely longer than most, to cover one and possibly two or more ownership cycles," he said.

The payment would go to the developer, not Waterfront Auckland, and be included in the apartment/residence purchase price.

"At that point, the clock starts ticking. When the lease nears the 125-year point, the apartment/residence owners have the opportunity of negotiating a new lease on terms agreed between the parties [land owner and body corporate owners] on then market terms, or terminating the lease - a possible but less likely outcome," Dalzell said.

The pre-payment price is based on the value today of all forecast future annual ground rental payments for the period, including reviews. The underlying assumptions are all based on current market practice and are the value of the land today, current rental expectations, rental uplift into the future and the discount rate used to determine the present value of all cashflows over the term of the lease, Dalzell said.

Developers are tendering to build apartments.

Financiers and investors Willis Bond & Co this year won an international tender to design and build the first 600 apartments, townhouses and duplexes in 17 blocks, six to nine levels high.

Dalzell said a partnership arrangement with the private sector in Wynyard Central meant developers and Waterfront Auckland, as the landowner, worked together on precinct-wide master planning, site specific product development and delivery and place management spanning the entire precinct and specific sites.

"The nature of what each party contributes over these stages varies, but there is an equitable sharing of risk and return relative to each party's role and responsibilities.

"A key outcome, balanced against the other essential and desired outcomes, is to establish a diverse and vibrant urban community.

"To achieve this, Waterfront Auckland is working with our private sector development partners to ensure delivery of a variety of housing typologies and price points available starting at $500,000.

"We are also continuing our very strong commitment to a place-based approach to establishing and building a resident community," Dalzell said.

"This relates not only to Wynyard Quarter but also the surrounding city centre area where there are a number of more affordable apartment opportunities not occupying prime waterfront locations."