Low returns hit high-rise prices

By ANNE GIBSON

Investors in the Metropolis apartments in central Auckland have been hit by a double whammy as apartment prices collapse and the tower's hotel reveals significant losses.

Many investors bought apartments in the Metropolis tower for use within the Ascott Metropolis hotel complex, generating a guaranteed 9.5 per cent return.

Of 366 apartments in Metropolis, Ascott operates 315 in its hotel pool and pays the owner/investors a portion of the income.

But the hotel has failed to meet expected occupancy rates, costing it millions to subsidise the guaranteed return.

General manager Frank Delli Cicchi says it will make a $15 million net loss for the two years to December 31.

The rental guarantee expires on December 7 and the hotel is warning owners they can expect significantly lower returns. Some might even receive bills if rental income fails to cover the upkeep of the property.

Mr Delli Cicchi told investors late last month that the monthly income for those who had bought units to be used as hotel rooms was not guaranteed.

"There may be periods when your revenue for the month is not sufficient to cover your unit's share of fixed operating expenses and owner costs.

"In those instances, an invoice will be forwarded to you for payment."

Mr Delli Cicchi said Ascott Metropolis had projected "a lower return on investment next year to between 2.5 and 4 per cent".

He cited many industry problems which could affect returns from Metropolis.

"In 2002, notwithstanding the euphoria in NZ over the America's Cup ... we are less than optimistic about the outlook for the hospitality sector, due primarily to the recent events in the USA and around the world."

He cited the cancellation of between 3000 and 4000 rooms in some Auckland hotels between October and February, saying the fallout from September 11 was having a disastrous effect on inbound tourism and New Zealand's hotel industry.

As well as hotel woes, Metropolis apartment owners are getting bad news when they sell their units.

Six Metropolis apartments have recently sold for up to 70 per cent less than the original price of the 1990s.

This has raised concerns for other new Auckland hotel/apartment developments sold off the plans with attractive guaranteed returns fixed for the first few years.

Martin Dunn, managing director of apartment sales firm City Sales, said yesterday that his firm had sold six apartments on levels 10 to 26 in the past two months.

One Metropolis owner who bought off the plans, paying around $700,000 for an apartment on level 26, had received only $465,000 for the two-bedroom unit.

Apartments on level 16 with stunning city views are selling for as little as $207,000. One two-bedroom apartment on level 16 was bought for $450,000 in the 1990s, but has just sold for $318,000.

Mr Dunn said the original investors were "obviously distressed" with the prices they were getting now.

He said the reason for the low Metropolis resale prices was that the guarantee of 9.5 per cent annual returns was expiring this year.

The returns were marketed and promoted by Bayleys Real Estate, which also marketed other hotel/apartment projects in the city.

Investors who bought off the original plans were attracted by the attractive returns fixed for the first two years.

"Investors expected they would buy on a 9.5 per cent return, which would then go up to 14.75 per cent by the fifth year of ownership," Mr Dunn said.

But the new returns were predicted at only 2.5 per cent to 4 per cent.

He said people were resigned to receiving realistic prices for their properties

City Sales

The Ascott group