Market warning in Metro City meltdown

The financial collapse of a high-profile block could signal grim times ahead for Auckland's apartment market, reports property editor ANNE GIBSON.

Softening prices and a slowdown in sales of Auckland inner-city apartments has spelt disaster for a high-profile block in the central city, with the company which owns it put into receivership 10 days ago. Metro City Apartments in Wakefield St, a towering 16 storeys with 109 units, has been dogged with ongoing problems since it was finished recently.

The latest came on July 5 when the first debenture holder, the Bank of New Zealand, instructed accountants PriceWaterhouseCoopers to place the owners in receivership over a $5 million debt.

One of the central reasons for the block's problems has been the softening in Auckland's apartment market, according to Garry Lawrence, director and majority owner of Metro City Apartments. Receiver David Davidson, of PriceWaterhouseCoopers, agrees. But the bank still wants its money back and the lack of sales has resulted in a failure to service the debt.

Lawrence acknowledges a high amount of debt involved in the project. Far more than $5 million is owed to two other parties. He detailed debts of at least $10.5 million on the block.

This is money owed to the apartments' funders. As well as the $5 million owed to BNZ, $3.5 million is owed to Canterbury Asset Management Ltd of Christchurch, while a further $2.5 million is owed to Hartford Group of Auckland, the second debenture holder.

But this $10.5 million does not include money owed to investors who have bought the apartments, guaranteed a 10 per cent net return for two years. Lawrence estimates about 17 investors are owed money.

He says he is doing all he can to get the company out of receivership and anticipates this will happen within the next month.

"My aim is to refinance the property in the time we have available and get it out of receivership," he says.

PriceWaterhouseCoopers' Davidson and Richard Agnew were appointed receivers on July 5, announced in a public notice in the New Zealand Herald on July 10.

Metro City Apartments, on the site of the former Globe Hotel near the Senior College of New Zealand, were developed by Colin Lofts but Lawrence says he has now taken over from Lofts, having acquired 99.5 per cent of the shareholding.

The apartments were for sale for between $100,000 and $125,000 each. But because of a 15 per cent drop in the their values between last November and last month, they are not on the market, Lawrence says. Of the 109 units, 64 are yet to be sold.

Tenants, residents and guests of Metro were advised of the split between Lofts and Lawrence in a letter from Lawrence, dated June 30: "We regret that due to mismanagement Sean Lofts, manager, and Colin Lofts, director, have been suspended from their positions by myself as majority shareholder and director of Metro City Apartments."

Trespass notices were issued to the Lofts and although police were advised of the situation, their involvement was not necessary, Lawrence says.

New security passes were issued to tenants and residents and apologies made for any inconvenience.

Lofts left Metro City Apartments at the end of June to concentrate on another troublespot: the Marlborough Ridge residential resort, tourist hotel and winery project at Fairhall, 5km west of Blenheim. ANZ Bank is owed about $5 million on this project, Lawrence says.

Lofts was behind another troubled South Island development: Waitaki Village, a planned conversion of old hydro-electric project houses near Oamaru. This development never got off the ground and went into liquidation.

The Metro City Apartments were marketed under the slogan, "Convenience and style - the difference of living in the city." The apartment block has one of the highest occupancy rates in Auckland at 85 per cent, Lawrence says, and this would soon grow to 95 per cent, "through my travel industry contacts."

The possibility of establishing an internet cafe on the premises and getting rents up through the international student market would also help, he says.

But one of the investors in Metro City Apartments, Alex Natautama, says he wants to warn potential apartment investors about the risks they might be taking.

Along with about 12 other investors, he and his wife bought into the apartments as an investment option. They were drawn by the promotions by Bayleys Real Estate with a guaranteed 10 per cent net return for two years.

"We all bought the apartment units and signed the contract, mainly because of the guaranteed return promoted by Bayleys, and we still have the Bayleys advertisements from the New Zealand Herald and the Chinese Herald," he says.

Now he is owed about $6000 in outstanding rental income and he wants to warn investors in other apartment blocks of the potential risks.