Beaumont Quarter Leaseholders - Sucking On Lemons

[spurner]

$3.1m rent on a $70m asset = not a very good return...

But it could also affect McKenna, who appears to remain the major shareholder in Beaumont Partners, which was set up by property syndication company Augusta Funds Management to acquire the freehold title to the land from McKenna for $70m.

[k1w1]

Surely there is a tipping point though, at which point no one will want to own the apartment because the share of the rent charged on the land is so high. Blood, stone etc.

My guess is that they are there already, if the cost is ~$30k pa. Even offsetting this by reducing the purchase price is a defeating solution. Still, what do I know?

[Keithw]

I think there will always be buyers, it will just depend on the price.
It may not make sense as a rental, but for an owner occupier, if the purchase price is low enough and they can live in their own place in a location that is desirable to them, that they otherwise couldn't afford to own on some nearby freehold land, it might be worth it.
Mind you at 30kpa thats $575 pw just for ground rent & before any mortgage payments- you would want it to be a pretty special place.
Maybe they will become accommodation for businesses employees- at least then the expenses will be deductable.

[captaincrab]

hi Spurner
"$3.1m rent on a $70m asset = not a very good return..."

Thats not how it is. When the rent was mooted at 4.4m , based on 70 m worth thats a return of 6.29%
But at 3.1m rent with a return of 6.29% then thats a value of 49m
Remember when McKenna bought the site it was the old Enerco Gas site so I reckon it owes him way less than 70, probably 40.
But certainly he wont get 70mio now.

[muppet]

Residents fight for bigger cut - Beaumont Quarter

Residents fight for bigger cut


Beaumont Quarter was hailed by the Auckland City Council for its visionary urban design. Photo / Dean Purcell


4:00AM Wednesday Mar 25, 2009
By Anne Gibson
Beaumont Quarter residents in Central Auckland are fighting to have their $3.1 million annual ground rent bill cut by another $1 million.
The angry apartment owners have already had more than $1 million sliced off payment demands for the land on which their buildings stand.
But they want the annual ground rent knocked back to $2.1 million.
Residents have been claiming confirmation of the first $1 million cut as a huge victory.
But sceptics this week criticised the outcome as a pyrrhic victory and said the owners had negotiated only a slight rent reduction.
The reason they were hailing their deal as a big win was so they could quit the place once praised by Auckland City Council for its good urban design vision, the sceptics said.
The housing development was highly commended for its approach to compact inner-city living.
But many apartment owners now wanted to sell out as fast as possible, one critic said, because they could not afford to pay the huge ground rent.
Beaumont Quarter Partners, controlled by Beaumont developer Nigel McKenna's Melview Developments and associates at Augusta Group, had wanted a huge land rent rise. Rent was to go from $900,000 annually to $4,435,000 a year.
But last year apartment owners sought professional arbitration before Sir Ian Barker, QC. He has just issued a second partial award, cutting BQP's demand to $3,129,664.86 annually for seven years from last April.
"That is a reduction of $9,137,000 over the seven-year period," residents were told in a newsletter this month from Neville Corbett, chairman of the Beaumont Quarter Residents Society.
"The victory that I announced in my newsletter of December 15 is confirmed, which is an excellent result for the Beaumont Quarter apartment owners. The setting of the ground rent amount means that those apartment owners who want to sell and move on now can do so."
McKenna said he was satisfied with the settlement.
"The arbitrator's decision was almost exactly the mid-point of the highest and lowest valuation ranges and the consequent ground rental calculations."
A deal for Augusta to buy out Melview's Beaumont stake has also unravelled.
McKenna said although the original sale of the freehold land had taken place, "the structure of the transaction was different from that originally envisioned by Melview and Augusta Group. As a result, Melview retains a security over 89 per cent of the equity in the partnership.
"Consequently, Melview and Augusta had agreed there was no future management role for Augusta in the Beaumont Quarter lessor's interest and this had now been assumed by Melview Developments."
Even after the $1 million annual cut, the unit owners' rent rise has still been steep.
Instead of paying an average $3400 for land under each of the 258 apartments in the complex opposite Victoria Park, unit owners will now be up for an average $12,000 a year each, although payments vary because the housing estate is broken up into a number of lots with differing payments.
Corbett said the new rent would be backdated to April 1 last year.
But owners were still disputing the final amount and fighting over interest costs which the land owner wants.
"At the extraordinary general meeting of the nine Beaumont Quarter body corporates held on March 2, it was decided to proceed with an appeal on the two legal points which did not go in our favour in the first partial award and the interest rate of 19.5 per cent," he said.
"The next partial awards to be considered by Sir Ian before giving his final award are the calculation of penalty interest that is payable to BPL for late and under-payments and the awarding of costs
"Because we made an offer to BPL in May 2008 to settle the ground rent at $3.2 million a year, which was rejected by them, I am hopeful that we may be awarded a significant amount of costs.
"The result of the new rent amount means that the lot value of the Beaumont Quarter land will reduce from the $70 million purchase price to $44.7 million.
"The first legal point is that the prohibition on subdivision of the lease should not be ignored for the purpose of assessing market value.
"Sir Ian has ruled that the prohibition should be ignored, therefore any rent reduction associated with the ruling is disregarded.
"The second legal point is the formula refers to the values of all other non-commercial lots in the development. Here the word 'other' in the lease has been taken to be a mistake by Sir Ian.
"So there is the possibility of a further rent reduction of approximately $950,000 a year should our appeal be successful on both points.
"Over the seven-year ground rent period that is a total reduction of approximately $6.65 million."
On March 10, the body corporates lodged notice for leave to appeal but Corbett said no hearing would be held for at least six months.
"Should our appeal be fully successful, the ground rent could reduce to approximately $2.18 million a year, which would result in a reduction of the Beaumont Quarter lot value to approximately $30 million.
"That's the good news, but unfortunately for some of the Beaumont Quarter apartment owners the new ground rent amount means they do not have the financial ability to pay the new amount.
"This is the sad part of the ground rent increase and I really do feel for those in that position.
"There are some options with this problem, the main option probably means selling and moving on."
Corbett said those who decided to stay needed to pay the ground rent, residents' society fees and water bills promptly.

http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10563345&pnum=0

[Austrokiwi]

That makes bizarre reading............. Charging NZ$12000.00 for ground rent.........IMI (In my ignorance) it seems like gouging more money out of apartment owners............and risking the whole economic viability of the complex.

[spurner]

Yeah but what do they care, because they own the land already. If the apartment owners don't pay then they can repossess the apartments. It's a no lose situation for the landowner.

The apartment owners have no choice, because they have too much invested.

[Austrokiwi]

Yeah but what do they care, because they own the land already. If the apartment owners don't pay then they can repossess the apartments. It's a no lose situation for the landowner.

The apartment owners have no choice, because they have too much invested.

I'll have to check what happens here..............I suspect apartment owners own shares in the land..... and pay a maintenance company to maintain the building ( I know of at least one apartment building set up like that unfortunately a friend bought into it and a law suit one of the other apartment owners had serious water damage from a leaking roof and it seems all other apartment owners are liable.............
Interestingly there is also a form of housing cooperative. To get a house, or apartment...........you pay to buy shares in the managing company (between €9,000.00 and 20,000) you then pay a low monthly "rental" ( with maintenance contract of about €300-€500 a month). The accommodation comes as a shell the 'owner' does the internal fit up. When that owner wants to move on... they sell the fit up to the incoming owner, and are refunded their shares ( some with interest/appreciation some not) Many young couples move into them to set themselves up for future home owner ship ( yes some houses/apartments you can buy off the company) {I won't be surprised if someone tells me that is how it operates with some apartment buildings in NZ.

[captaincrab]

Hi Austro
The coy share ownership system was used here in the 50's mainly to get round Planning Consents as the Council wouldnt allow Unit Titles. The owners all had shares proportionate to the area they owned. There are several buildings in Mission Bay which are still like this.
On Beaumant Quarter. The complex is all Unit Titles with the land then being leased to the "owner" (really Lessee).
If you cap $12,000 pa at say, 7% then the piece of land occupied by that particular Unit would be worth $180,000. Doesnt sound too bad for property in St Marys Bay.

[CJ]

If you cap $12,000 pa at say, 7% then the piece of land occupied by that particular Unit would be worth $180,000. Doesnt sound too bad for property in St Marys Bay.

that puts it into perspective. The issue is they didn't pay $180k less than if it was freehold (ieg. you look at the apartment and say it is a $300k apartment, take of the value of the land and you offer $120k. These people bought for $300k).

[Austrokiwi]

that puts it into perspective. The issue is they didn't pay $180k less than if it was freehold (ieg. you look at the apartment and say it is a $300k apartment, take of the value of the land and you offer $120k. These people bought for $300k).

Not sure I understand you CJ? Are you saying they were charged the land price based on the assumption the land was a building section?

[Badger]

visionary urban design?

Why? whats so visionary about it? looks like any piece of crap built around oriental bay in the past 20 years.

Does it recycle water? produce any energy? any construction material of a recycled nature in building it ?

The only visionary thing which Id class in the realm of fantasy land is that it has lots of large inventive numbers in deciding if its actually worth what its worth to rent...what a bland piece of crap...wouldnt pay 100 per week to live there...

[Austrokiwi]

visionary urban design?

Why? whats so visionary about it? looks like any piece of crap built around oriental bay in the past 20 years.

Does it recycle water? produce any energy? any construction material of a recycled nature in building it ?

The only visionary thing which Id class in the realm of fantasy land is that it has lots of large inventive numbers in deciding if its actually worth what its worth to rent...what a bland piece of crap...wouldnt pay 100 per week to live there...

I agree.................Alfred Loos and the modernist Architects are responsible for some of the greatest travesties in taste with respect to Architecture. The art in architecture has been removed; especially with the reliance on CAD and straight lines!!!!!!!!

[Badger]

Ive restored a fair swag of olde welly houses, from the eastern suburbs to kelburn and thorndon and even though many were very shabby the detailing in them was superb. This from Kunstlers site sums up the tragic error of garbarge building that NZ has also partaken in...

This monstrosity stirred up a lot of shock and consternation as it rose up on a middling-quality block on the north side of Saratoga Springs. The general complaint was that the building was "too tall," but this was actually the least of its errors. (See photo below.) The problems obtain not from its height but from poor proportioning and design. Basically, what you have here is a crab shack on top of a three story packing crate. Note that they have used a "heavier" (darker color) in the upper floors rather than the base. That makes the building look top-heavy." Notice that the volumes are simply stacked, like pallets in a frozen food warehouse. Notice the "change of materials" gambit on one side of the ground floor. It was supposed to give the base "weight" but it actually looks incongruous (and dumb). Notice the poor quality materials used for the screened-in porch, and especially the flimsy appearance of the columns. The windows are mere holes in the walls. There is absolutely no meaningful or graceful ornament. The neighbors are right about it being an ugly monstrosity, though, and that they will have to live with for the rest of their lives. Our knowledge and skill in building has been reduced almost to zero in this culture.

19th century four-story (inc. tower) house in the eclectic Second Empire style, Saratoga Springs, NY . Whatever else you might say about this exuberant building, notice that no one has ever complained about it being "too tall."

Have restored a few houses like the 19th century one above. Earliest was 1870 cottage in thorndon and even then it had detailing not found in todays bland mono tacky box of moldy leaks with no eaves and no boxed corners...

http://www.kunstler.com/

[CJ]

Not sure I understand you CJ? Are you saying they were charged the land price based on the assumption the land was a building section?

Sorry I didn't make myself clear.

A land value of $180k doesn't seem unrealistic. The issue is the price they paid for their units didn't really account for the fact it was leasehold (ie. they paid near freehold prices, so they paid for the land even though they dont own it and have to pay an annual lease payment).