Business as usual for quality developers

Dunedin lawyer Ron Mackersy says there are still quality property deals to be had in the South. Photo Gerard O'Brien.

Dunedin lawyer Ron Mackersy is barely in his Maori Hill office these days.

With Mitchell Mackersy having offices in Dunedin and Christchurch, he and his staff travel to meet clients in their own businesses about as much as their clients travel to the law practice's offices.

He has not been busier and despite reports to the contrary, commercial property development in the South Island is as strong as ever - but only in the top-grade properties.

"You can't build on spec any more. If you have a tenant signed up for 10 to 12 years, that can be financed," he said in an interview.

There was very little second-tier funding available in the market, mainly due to the credit crunch pushing funding costs higher and also forcing some finance companies into liquidation or receivership.

Other finance companies had been forced to withhold payment to investors, causing a panic in some circles.

Mr Mackersy said there was no funding for properties which did not demonstrate sufficient cash flow being available to service the loan. That was a reflection of the lack of second-tier lenders.

Cash to those lenders had dried up as investors worried about getting their money back. That would continue for some time yet.

"The sentiment of the market won't change for 18 months. You will still see good projects in 'A grade' start off because a lot of people still have funds.

"Many of my clients have been sitting on their hands for two years because commercial property was too expensive. Those people are now coming back out of the woodwork because they are able to buy things at a more realistic price."

Mr Mackersy works with South Otago company Calder Stewart and the National Bank on projects from Blenheim to Invercargill. A firm partner Sally Peart specialises in clearing overseas investment consents, easing the way for overseas cash to be invested into projects around the country.

Included in those projects is a $25 million fully consented and tenanted development at Frankton. The development had retailers, offices, a bank and major fast food outlets. The difference was finance being available because strong tenants had signed up.

Some of those tenants were Australian-based and expanding into New Zealand. They took a "pin at the map", deciding they needed exposure in geographical locations. They would continue with that kind of philosophy.

"Lots of projects - residential, apartment, tourist accommodation - were started without any research being done into long-term potential owners or rental income.

"You need to have all the elements of construction, financial and tenants in place. Once they are all together, the project still works. The only change is the price expectations are not as high as they were in the past."

Properties with short-term leases, low tenant occupancy or with spare land around them had no buyers in the current market, he said.

Dairy factories in Canterbury and South Canterbury, dairy developments in Southland and feedlot developments in Canterbury and South Canterbury were also being undertaken by Mr Mackersy, Calder Stewart and the National Bank.

Talks were under way about a major project in Timaru for the fine wool industry which would see the wool go out of the local port in a value-added state, rather than raw wool.

The much-maligned forestry industry was also seeing a revival, particularly as North American home owners turned to "do-it-yourself" renovations of existing properties because they could not afford to build or buy new homes.

"People who have got products with overseas demand, coupled with the low dollar, can see all the added value coming back to New Zealand."

In Southland, optimism was based on the growth of the rural economy but also on the prospects for coal and oil exploration.

"You get the feeling in Invercargill that they believe in themselves because so many good things are going for them. People are very positive about the region."

Although millions of dollars was being spent in provinces surrounding Otago, Mr Mackersy believed that too many people here were not celebrating success within the region.

He admitted that much of the development outside of Otago was based on parts of the rural industry that were not particularly strong in Otago. But the born-and-bred Dunedin lawyer believed there were reasons for optimism here.

"We need to be positive about our people and resources we have here in Dunedin and Otago."

Otago Chamber of Commerce chief executive John Christie agrees with Mr Mackersy's philosophy.