Richlister takes hard line with tenants

Distressed business owners are being brought to their knees by tough rents in Covid-stricken Queenstown, including those charged by a property company owned by a richlister. Jane Phare reports.

Queenstown retailers and other business owners are chewing through their savings to keep the doors open, pay their staff and rents which climbed, pre Covid-19, to more than $200,000 a year in some cases.

Business owners spoken to by the Herald say they cannot survive if the crippling rents are not reduced and that some landlords refuse to negotiate. They fear losing their businesses and being bankrupted after a year of being forced to pay rents that were set when the town was brimming with tourists.

Some Queenstown retailers are still paying more than double the rental charged for premium Auckland shopping precincts including Commercial Bay and Newmarket.

Covid-19, the border closure and multiple lockdowns mean business has plummeted by 50 to 90 per cent in tourist towns, but in some cases landlords are still charging rents at full rate.

Trojan Holdings, owned by South Island rich lister Sir John Davies, is one company that is holding some of its rents at pre-Covid levels, charging as much as $200,000 a year for Queenstown shops that rely on international tourists to survive.

Some tenants feared their rents would rise even more this month after one business received a notification from Trojan saying the rent would increase by another $10,000 a year. Trojan later withdrew the increase, but tenants say the rents are still double what similar outlets cost in Auckland.

Business owners say the high rents were sustainable in the days when international tourists flocked into Queenstown, queuing outside local icons like Fergburger and Cookie Time, and spending up large in local shops.

One business owner told the Herald that international tourists would sometimes spend several thousand dollars at a time in her store, but those customers are long gone. Most locals do not shop in Queenstown, preferring to go to the large shopping centres at Five Mile and Queenstown Central in Frankton, where access is easy and parking is free.

Adding to retailers’ woes are major roadworks in downtown Queenstown, part of the council’s $170m worth of shovel-ready projects in the district, which they say are creating even more of a deterrent to local shoppers.

Retailers are propping up their businesses and paying staff from their personal savings, hoping they can survive until the approaching ski season.

One Trojan tenant says it is costing $10,000 to $12,000 a month to keep the business open and pay full rent. Those spoken to by the Herald did not want to be named, fearful that any chance of negotiation would disappear if they spoke out.

Sir John Davies and his family are well known in the region, having invested heavily in tourism and transport since the 1980s. He received a knighthood in the 2013 Queen’s Birthday honours for services to business and tourism, and served as a local councillor and later as mayor of Queenstown Borough and then Queenstown Lakes District during the 1980s.

Through Trojan and other business holdings, Sir John owns SkiNZ, which includes Coronet, Remarkables and Mt Hutt ski fields. He also owns the rights to the Routeburn and Milford Tracks guided walks, the Heritage Hotel at Aoraki/Mt Cook, a carparking building in Queenstown and a transport company.

Trojan Holdings also owns multiple properties in the South Island, including Queenstown’sStation Building, which houses tourism booking offices, and Stratton House (Stratton is Sir John’s middle name) which houses the SkyCity Casino, and several retailers.

In addition, Trojan Holdings owns 40 per cent of NZ Bungy (AJ Hackett), which was granted $5.1m last year as a result of Covid-19 with the option of a further $5.1m loan.
Sir John appeared on NBR’s 2019 Rich List, worth $140m. The Davies family also owns a $15 million Bombardier Challenger 300 jet.

One business owner with multiple outlets throughout New Zealand says in his experience all the company’s other landlords have been supportive apart from Trojan Holdings.

“Every other landlord has been fantastic. They’re more interested in the relationship.”

Some Trojan Holdings tenants say they got a month’s free rent during the initial lockdown and three months at 50 per cent after that. But as one owner points out, even at a 50 per cent reduction, the rent was still more than he paid in Auckland – about $90,000 for each location.

Some have invested $250,000 in shop fit-outs and cannot afford to walk away.

Sir John did not respond to a request for an interview and did not answer written questions from the Herald. Trojan’s finance manager Neil Johnston did not answer direct questions, instead sending a statement saying Sir John did not get involved in the day-to-day running of the property business.

Both Sir John and his son Michael are directors of Trojan Holdings. Michael Davies, who owns a list of properties in his own right, lives at Hogan’s Gully near Arrowtown on 132 hectares of farmland owned by the Davies family. He was behind an application to build a $30m, 18-hole championship golf course and clusters of private homes on the land.

Johnston’s statement said that from the outset of the pandemic, Trojan had worked closely to support its tenants and provide significant rent relief based on individual circumstances.

“We continue to engage with and support our tenants on a case-by-case basis. We know how important they are as part of our community and how important it is for them to be here while Queenstown recovers.”

Johnston later sent an email saying that over the past 12 months the company’s central Queenstown retail and hospitality tenants most affected by Covid have had, on average, a 30 per cent rent reduction on pre-Covid levels.

The Herald asked if that 30 per cent reduction included the initial discounts during level 4 lockdown, and the 50 per cent discounts for three months after that, and how manyTrojan Holdings tenants had received rent relief in the past six months.

Johnston said he could not talk about specific arrangements with tenants as they were confidential arrangements. He did not answer a question asking whether Trojan would pursue tenants for unpaid rent and bankrupt them.

The Herald did find a Trojan tenant who has been given a rent reduction for two months, after providing turnover figures proving business takings were down between 55 and 65 per cent on last year.

Lisa Cooper, a co-director of Around the Basin Bike Tours in the Station Building, says she and her partner Steve Norton approached Trojan in February to ask for a rent reduction until the borders reopened. They were given a 20 per cent reduction for two months, a saving Cooper hopes will continue.

The bike tours business is surviving, she says, because the rent in Trojan’s Station Building is “nowhere near $200,000 a year”. The building is outside the main shopping streets and is being refurbished.

“We’re still making enough money to pay the rent and to pay our staff, but we won’t be taking a dividend, put it that way.”

Cooper’s father is a landlord in Queenstown and has given all his tenants a 50 per cent rent reduction until the borders reopen. Cooper says she was hoping for a more generous reduction from Trojan but is pragmatic about the outcome.

“I can kind of understand it from their perspective too. They’ve still got overheads to pay.”

The Herald approached other Trojan tenants, including SkyCity Casino, Swanndri, Oakley, Cotton On and Quicksilver. They either declined to comment on the rents or did not respond by the time of publication.

Ngāi Tahu Property, which owns commercial property in the region, also has a reputation in the town as a tough commercial landlord. Queenstown tenants say their Ngāi Tahu landlords were initially helpful with rent relief after lockdown but rents went back up to full rate even though business trading is below 50 per cent or normal in most cases.

Jo Gilbert, of Ngāi Tahu Property, told the Herald this week that the company will shortly be in touch with its Queenstown retail and hospitality tenants to inform them that a rent relief strategy is underway.

Ngāi Tahu gave generous rent reductions for the first three months after lockdown, including free rent, she says. Gilbert confirmed rents had since gone back up to full rate but says Ngāi Tahu is keen to work with its tenants.

“We have been keeping an eye on tenant trading since. We were hoping for a good summer, particularly December, January. Unfortunately, that doesn’t seem to have transpired in Queenstown.”

The company is developing a six-month rent relief strategy from January 1, 2021, that will be backdated. The rent relief will be revisited once there is more information about the transtasman bubble and vaccine roll-out, Gilbert says.

“Obviously our tenants are key to our business so we want to make sure we partner with them to find a solution that works for them.”

The rate of reduction will vary between tenants depending on how each business has been impacted, she says. “We can only give out a certain amount of rent relief because we have commitments ourselves so we want to make sure that the relief is given where it’s most needed.”

Not all rich and famous

One business owner says there is a misconception that Queenstown is a wealthy town full of rich people.

“There are a lot of rich and famous, absolutely, but they don’t necessarily own the businesses,” she says.

Most of the business owners work long hours, many seven days a week.

“We’ve been burning cash out of our own back pockets for 12 months, and now there isn’t really any light at the end of the tunnel.”

Some landlords have made good money in the past and are willing to negotiate.

“They’re happy to take the pain with us. Nobody blames anyone, it’s not anybody’s fault. But everyone’s got to play their part and landlords have a role to play.”

Business owners who own multiple outlets throughout the country say most, not all,landlords have understood the devastating effect the border closure has had on most Queenstown businesses. Some landlords have reduced rents by between 40 and 80 per cent in hard-hit areas after the border remained closed.

Not all landlords have been hardnosed. One of the largest commercial landlords in Queenstown, Prime Retail Queenstown Ltd, owned by the estate of Irish billionaire Eamon Cleary, gave all its tenants an immediate rental discount when Covid-19 hit, and has kept them at the reduced rate ever since.

Cleary, who died in 2012, owned commercial property, farms and high-country stations in the South Island, including Coronet Peak Station, which he sold to singer Shania Twain’s ex-husband, music producer Mutt Lange.

The company’s solicitor, trustee and director John Henderson describes the amount of rent relief as “generous” and says all tenants got the same flat discount.

“Our approach is that we want the tenants to be in our properties when things come right. There is no sense in driving them into the ground and having them disappear, and then for us to run around to try and put tenants in their place later.”

Michael Wan, owner of KLF Discounts gift shop in Beach St, is among the Cleary tenants who have benefited from considerable rent reductions but says he doubts he will be able to survive much longer.

He’s been in business in Queenstown for 25 years and has never known it so bad.
He’s averaging about $700 a week in sales and sometimes as little as $340 a week. Even with a 50 per cent discount, it is not enough to pay the rent and staff wages, he says.

“We have lost money for a whole year. It is really, really difficult … I don’t think I can continue to be honest.”

Wan is grateful for the rent discount from landlord Prime Retail but says until the border reopens he will struggle. In February he sold $2533 worth of goods, not enough to cover the rent and pay staff.

Restaurateur Darren Lovell closed his restaurant Fishbone last month after running it for the past 15 years, despite his landlord giving him a 50 per cent rent reduction since Covid-19 struck.

Fishbone has been a landmark in Queenstown since 1991 when it opened as a simple fish and chip shop. A devastated Lovell poured his life savings into keeping the restaurant afloat, but with business down by 75 per cent, he was forced to pull the plug.

His landlord, he says, has been supportive ever since Covid-19 decimated the town, reducing his $150,000-a-year rent by half. When Lovell was forced to close, his landlord let him walk away from his lease.

“I can’t fault my landlord. He could bankrupt me if he wanted to and he has no intention of doing that.”

Lovell, who once employed 20 staff at Fishbone, is now running Chicken Love, a pop-up food business at Frankton, with the help of two staff and his partner.

Last year he wrote an editorial for the Mountain Scene newspaper in which he said, “Day-by-day, week-by-week, this town is dying, and no one, it seems, wants to talk about it.

“We’re a town with no tourists, our population is shrinking and there’s no light at the end of the tunnel,” he wrote.

Lovell’s landlord, Queenstown resident Ian Hamilton, says he is a long-term investor and the situation in Queenstown is tough on everyone.

“Landlords have to make a living too but we also have to bear in mind that there is a partnership, and tenants and landlords need each other.”

Malcolm Price, the owner of the iconic restaurant The Cow, was struggling to survive after his rent went back up to 100 per cent in October last year. His business has been running at 20 per cent of normal since Covid-19.

But last month his landlords, “a couple of good local lads,” told him his rent would be reduced by 50 per cent until international tourists returned.

The Queenstown Chamber of Commerce has been swamped with calls from many of the 600 business owners it represents, many wanting financial and legal help, or advice on how to put their businesses into hibernation.

Ruth Stokes, the organisation’s new CEO, says pleas for help are “coming in thick and fast and are accelerating”.

When the borders reopen, Stokes and others fear the town will be flooded with tourists who will be greeted with empty shop frontages, closed restaurants, hotels in mothballs and not enough staff left with the right skills to provide service.

Queenstown’s mayor Jim Boult says the owners of tourist attractions are down 90 per cent in turnover in some cases.

“Hotels are telling me that a good night is 15 per cent occupancy. So, tough, tough, tough.”

That loss of turnover filters down to small businesses, he says, and he’s aware many are struggling to pay rent. Boult says he’s had a lot of feedback about tough landlords.

“I know that some landlords have been incredibly kind and others have not been.”

He wants landlords to work with tenants to establish a rent they can afford.

“The rationale is that landlords should be pleased to have a live tenant at the end of all this rather than an empty restaurant or shop.”

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