Prime Auckland brewery site poses $1 billion dilemma

AMP Capital Investors is reviewing all aspects of its Lion Breweries Newmarket project as industry participants wonder if even an investor of its stature can pull off a $1 billion development on prime land in Auckland in this market.

The sale of the 5.2ha site on Khyber Pass Road for $162 million was agreed in 2007 before the global financial crisis crunched credit and investors' appetite for risk, and only a $50 million deposit has been paid.

Vendor Lion Nathan has been building a new brewery on Ormiston Rd in South Auckland and is expected to leave the historic Newmarket site this year.

AMP Capital Investors plans to build apartments, offices, shops and a high-rise retirement village in what is believed to be the biggest property development in New Zealand. The site is about 10 minutes from Auckland's central business district, next to the Auckland Domain, and in the Auckland Grammar school zone.

But development plans are delayed and Cameron Brewer, chief executive of the Newmarket Business Association, is "increasingly concerned that this huge site could be abandoned for years."

Decisions are looming.

The 2008 annual report of Great Northern Developments, the company formed to acquire and develop the site, reveals Lion has a right of occupancy for three years from the date of sale on September 26, 2007 and a vendor mortgage of $122 million is due on September 26, 2010.

Great Northern, which takes its name from a former brewery on the site, in 2008 became a joint venture between AMP Private Equity Real Estate Fund II, a fund managed by AMP Capital Investors, and Haumi Developments Ltd Partnership.

Haumi – the Maori word for joining or partnership – is owned by the Abu Dhabi Investment Authority (ADIA), which has been coy about its expanding portfolio in New Zealand.

A separate ADIA-owned Haumi company owns 19.9% of AMP Office Trust, the largest listed office building owner in New Zealand, and 50% of that trust's manager.

ADIA invests oil wealth from the United Arab Emirates and is reported to be the world's second biggest institutional investor.

AMP Capital Investors managing director Graham Law told NZPA that the strategy from the outset was to attract new investment. While Haumi was secured as a co-investor in late 2008 no further new investment had been secured since.

"We continue to focus on securing further investment in this iconic development," he said.

ADIA's investment in Great Northern was unrelated to its investment in ANZ Office Trust and ANZ Office Trust had no exposure to Great Northern, he said.

He said Lion Nathan was required to give notice six months before vacating the site and notice had not been given.

"We do not currently have a fixed date for the repayment of the vendor loan," he said.

Lion confirmed it had not given notice and that discharge of the mortgage would not occur until it vacated the site.

"Our current best estimate is toward the end of the year but there is some flexibility in the time line depending on circumstances," Neil Hinton, Lion's corporate affairs director said.

Mr Law said the time line for the project had been delayed due to the prolonged effects of the global financial crisis.

"We're reviewing all aspects of the project," he said. AMP was working carefully through all options for progressing the site.

Mr Law declined to comment on the impact of a likely revaluation of Great Northern's assets given the still poorly performing development property market. The 2008 accounts have an event after balance date note that the property market "may have declined".

He said it was a matter for directors when they approved the 2009 financial accounts. These accounts do not have to be filed to the Companies Office and they will not be filed.

AMP Office Trust cut the value of its portfolio of prime office buildings by 7.6 percent in a year.

Great Northern had total assets of $179 million in 2008. The company has a cash advance facility with BNZ due for repayment on September 26, 2013.

The accounts note that the company is reliant on the continued financial support of its bank given the nature of its business and that the bank had given no indication that it would not extend funding.

ADIA is believed to have assets of between $US500-700 billion and recently underwent a management change when Sheikh Hamed Bin Zayed Al Nahyan took over as managing director after his brother Ahmed died in a glider crash in Morocco in March.

ADIA said in the Overseas Investment Office application to invest in Great Northern in 2008 that it wanted to participate in real estate development to create a diversified property portfolio. That application had an asset value of $172.8 million. ADIA declined to comment for this story.

AMP Capital Investors needs to have the site re-zoned for mixed use, and its application to Auckland City Council is taking longer than expected.

"When the ADIA was cleared to buy the half stake 15 months ago, we hoped it would provide a shot in the arm that this site needed," Mr Brewer said.

"However, alarmingly, just a few months out from Lion Nathan pouring the last pint, there are still no concrete plans for what is one of the country's largest development sites," he said.

Newmarket could be left with an abandoned site surrounded by graffiti-clad hoardings.

"We appreciate that there's been a recession and that AMP was forced to sell half of its investment to Abu Dhabi. However, we fear that the first sod being turned is still years away," Mr Brewer said.

The budget has also made new property development less attractive by removing depreciation on buildings with a life of more than 50 years.

New developments may not go ahead, AMP Capital Investors head of investment strategy, Jason Wong, said when the budget was released.