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Dominion Funds adapts its ways in tough market

By Campbell McIlroy

Friday 26th May 2000

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PARNELL POINT: Previous development plan sold out in 48 hours
A $13 million offer by Dominion Funds is being seen as a signal property syndication is to broaden across all sectors to attract investors.

Investors are being offered the chance to back Parnell Point Properties, comprising the former White Heron Hotel residential development on St Stephens Ave in Auckland's Parnell, and the Farmers South Island distribution centre in Christchurch.

Director Richard Lynch said the combination of properties marked a change in philosophy for the company.

Single-asset property syndications have struggled to attract support.

Last week FR Partners cancelled its Lambton Quay office tower trust and last year Waltus suspended payments on four of its syndicates to help with releasing programmes.

Mr Lynch said the recent negative publicity surrounding syndications did not help but he expected the Parnell Point Properties fund to be fully subscribed within three weeks, well ahead of its June 30 shut-off date.

The combination of commercial property investment and property development financing offered the better returns investors were seeking as yields failed to keep up with rising interest rates, Mr Lynch said.

Of the $12.96 million being raised by the company, made up of $4.32 million in shares and $8.64 million in debentures, $6.5 million will be used to buy the Farmers Distribution Centre in the Christchurch suburb of Hornby.

The Farmers lease, which has 11 years left to run on a 15-year term, is returning an annual rental of $643,573 on a yield of 9.9%.

Another $8 million from the trust will be lent as development finance to Equinox Finance for the redevelopment of the White Heron Hotel into what is described as luxury apartments.

The loan is for a term of three years at a rate of 12% plus a 10% share in the net profit of the development, expected to be around $10 million.

The development itself is a joint venture between the Equinox White Heron Trust and the Queen City White Heron Trust and will be completed in three stages. Stage one will comprise three three-storey buildings with an apartment on each level priced at between $2 million and $6 million.

Work on that stage is expected to commence in October or November and take 12 months, with resource consents due to be confirmed within a week. Stage two is yet to be finalised but will comprise a maximum of 29 apartments on the hotel site, and a further two to three on the site of Rodean House adjoining the hotel.

Stage three is also yet to be finalised but will be either the sale or development of the residual lot at the rear of stage one.

Despite the flat residential market Mr Lynch said the top end of the market was not suffering and people at that end of the market were still able to write cheques. A previous development planned on the site sold out in 48 hours, Mr Lynch said.

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