Simpson Grierson building: ugly duckling?

By Coran Lill

Friday 1st October 2004

The cancellation of the $101 million August contract between Trans Tasman Properties and St Laurence for the purchase of the Auckland Finance Centre last week was quickly old news.

After being contacted by Trans Tasman, Capital Properties keenly stepped up to the fore. Capital Properties was the underbidder for the centre in August with an offer in the late $90 millions, which was in turn followed by "several offers in the mid-90s," according to a source close to the action.

Trans Tasman executive director Rod Hodge said these figures were close to the mark.

Capital Properties' $78 million conditional purchase is for four buildings: Qantas House, Brookfields House, John Scott House and Durham House. The purchase includes 393 carparks.

When it made its August bid, Capital Properties had organised the onsale of the Simpson Grierson Building because it wasn't interested in holding on to it.

It seems trying to sell the buildings as a parcel is proving more problematic for Trans Tasman than selling them individually. St Laurence didn't like the look of the Qantas building because it didn't suit "an active investor" but Capital Properties was concerned about the 20-level, B-grade Simpson Grierson Building in Albert St because of the pending lease termination.

The fact that majority tenant Simpson Grierson is leaving the building next year is too risky for Capital Properties' low-risk generated income, chief executive Chris Gudgeon said.

And if Capital Properties secures ownership of the remainder of the centre, the three titles it will get will make it easy to onsell the properties although Mr Gudgeon stressed, "that's not why we're going into it."

When Simpson Grierson vacates the Albert St building in the first half of next year, the owner may struggle to fill its 15 floors of office space quickly enough for some buyers' liking.

It's the third attempt by Trans Tasman to sell the 1980s Chase Corporation-developed CBD complex in six months. The first deal, which was anonymous, fell through in March.

So if Trans Tasman is third time lucky and offloads the bulk of the centre, what happens to the Simpson Grierson Building?

With the exception of minor retail tenancies, law firm Simpson Grierson leases the entire building. The firm is due to move into the $110 million Manson-developed 29-level NRM Tower in Shortland St by April 2005.

Rumours in the market that Simpson Grierson would not move into the tower until later next year were false, Simpson Grierson partner Greg Towers and Manson's Culum Manson said.

Such rumours have probably arisen because Simpson Grierson will be forced to extend its Albert St lease by 12 months until the end of 2005, if it has not done so already. Neither Simpson Grierson nor Trans Tasman would comment on whether Simpson Grierson had already opted for an extension.

Trans Tasman could not market the Simpson Grierson Building until the Capital Properties deal was resolved, one way or another, Mr Hodge said.

Law firm Minter Ellison, which is also moving into the new NRM Tower, is in the same boat. Its lease in Queen St's BNZ Tower will expire in September 2007 and it plans to move into the new building in June next year.

Manson is likely to be helping both parties with payment of their old leases when they leave their buildings. Neither Manson, Simpson Grierson nor Minter Ellison would elaborate but developers paying incentives such as "looking after" leases in tenants' old buildings are not uncommon.

Don't be surprised if St Laurence or one of the other earlier bidders steps up and buys the Simpson Grierson Building if and when the Capital Properties deal is finalised. St Laurence wanted the Simpson Grierson Building because it saw opportunities to convert the well-located building into apartments or a hotel or upgrade the building, St Laurence property and finance manager John Mellan said.

Capital Properties is on day four of a 15-day due diligence. All going to plan, the deal will become unconditional on October 15.

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