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Recently I sat down with well known Wellington philanthropist (Sir) Mark Dunajtschik to find out how he managed to amass a mortgage-free portfolio valued in the excess of $400 million.
What was your first real estate purchase?
It was a two flat investment property in the Wellington suburb of Northland.
What was your first commercial property purchase?
My first one was a multi storey building on the corner of Chaffers and Wakefield Street. Purchased from publicly listed Robt Jones Investments in 1986 for $1,050,000. I named it Polo House and sold it in early 2018 for $4,500,000. I named it Polo House because the Polo handkerchiefs were manufactured there in the early days.
Why commercial over residential?
Dorothy and I manage our properties. We are very hands on. Something we have not changed. We did not employ property managers. It became obvious to me that residential is very labour intensive and the gains very small. I could see there were bigger profits and gains to be made moving into commercial.
I know that there are many properties you once owned but sold. For example, 75 Ghuznee Street, 265 Wakefield Street, 204 Thorndon Quay and the big box retail complex on Tory Street that you developed from the once Wellington milk treatment station now home to the likes of the Warehouse, Noel Leeming. Since the time you sold them, they have gone up in value. So why did you sell them?
That's simple to answer. I could only move on to bigger projects if I sold these smaller properties. I added value to them. Then on sold them when there was no further value to be added. They are all good properties, but I could not achieve the big gains that I did with the likes of HSBC tower. You can't hang onto them and move into bigger projects as you need the money to do the bigger projects. Note HSBC tower is a 25-storey office tower on Lambton Quay built in 2002 and sold by Mark in 2018 for $103 million.
So the motivating factor to move into bigger projects was to generate bigger profits?
Yes, but also administration. The big issue is that I, with Dorothy, always did the property management and administration. To do a $100 million deal is as much work as a $10 million deal. You have to do the same amount of due diligence and the same process in establishing finance whether you borrow $10 million or $100 million. It comes out to the same amount of work when you have a lease with a tenant at over 3,000 square metres. It is the same amount of work as a 300 square metre tenant.
But didn't the big risks scare you? Having a portfolio of a number of properties and a number of tenants would reduce your exposure to any one property or any one tenant. Was that not a factor?
Yes, of course, but having sufficient of your own money in the project, you don't have to worry. It's only when you sail close to the wind that you worry, which I have done many times in my life.
How did that happen when you sailed close to the wind?
My always saving grace was my cash cow, Precision Grinders, an engineering business. That kept me afloat, and I could make enough money to service my borrowings.
You could have employed a property manager Mark. Was that ever an option?
Never in my mind. I always did it all myself. For a starter, I always knew what I was doing and, secondly, why pay for something you can do yourself.
Your portfolio is very weighted towards office, with little or no industrial. Why office, and why have you shied away from other types of properties?
I simply started in office buildings. That's where I built up expertise. I insisted on having everything in a very compact area. A famous quote I made was "I only buy between the railway station to the Basin Reserve" and that comment was passed to Bob Jones once and his famous question was "What does that guy know that I don't know?" I just invest in that area. As you know, I do my own maintenance, so I wanted to be as compact as possible. Of course I have retail on the ground floors.
Why have you been quite focused on building your own buildings like Asteron House when you simply could have purchased an existing building and not gone through the hassle of dealing with contractors, council etc?
Building my own buildings gave me the opportunity of developing equity which represented the development profit.
Asteron House is an interesting story. For the benefit of the readers that are not familiar with the property, it is a 15-storey office building of 49,000 square metres located opposite Wellington Railway station. It is the largest office building in the city developed by one person and, to give you an idea of the size, the floor plates are probably the largest tower floors in the city.
The story goes, Mark, that you started building it simply to take advantage of any opening in Fletcher Construction work programme.
Yes that was one and the other was that a number of major tenants were nearing the end of their leases and would have to have somewhere to go. If I waited until they were ready to move I wouldn't have been able to produce a product quick enough, so I produced a product in anticipation. I had three tenants who wanted it very much: IRD, Telecom and BNZ. BNZ later declined and sent me a very nice letter explaining that they were following the example of their Melbourne office set on the waterfront that was so popular with the staff they decided to move to the waterfront here (what happened later as most of you will know BNZ's waterfront office building was severely damaged in the Kaikoura earthquake). I signed up my first tenant, IRD, seven months into construction.
Some people would have said you were quite mad to do it with no pre tenant commitment.
No. The growth was quite obvious and Wellington would need more space. In the worst case, you can leave it empty. In fact there was this case in London of this new office building. The owners did not lease it despite the fact there were tenants as they were making more capital gain by leaving it empty rather than leasing it at depress rates.
So you could have afforded to have it finished with no tenants?
Possibly yes - yes I could have, because in those days I had the HSBC tower and the building next door where the Hilton is today and 204 Thorndon Quay. I could have done it.
And if it wasn't Fletchers would you have run with another company?
No, it was Fletchers. They were very good to deal with. We had a cost plus deal. It was no problem.
That's not the first office building you built didn't you build one in Kate Shepperd Place?
That's right.
Why build a building and not buy an existing building?
Because you get the development margin if you control the process yourself. This is a classic example (Mark is referring to Asteron House). It cost me $130 million. Originally, we applied for a development loan of $150 million, and it was granted. During the process of building it, I found enough ways of reducing the cost. I eventually only needed $130 million.
And of course when it was completed it was worth a lot more.
When it was fully leased the value went up to over 300 million.
Is that what you projected?
No, I didn't project any numbers, I just projected potential and built as efficient as possible to achieve maximum value.
Fantastic story for one man isn't it?
But just let's finish that one. And now 10 years later, which was of course, in 2020, we got the report from the engineer and what used to be 100% NBS suddenly became less than 34%, and then I frantically tried to sell it for 200 million.
Why?
Because I was disappointed with the enormous devaluation from over 300 million to less than 200 million. The building was empty, everybody had moved out. I didn't want to get involved in the strengthening, so I was trying to get rid of it. I offered it to three major people who were capable of buying it for 200 but everybody shied away because everyone wanted reports for this, that and other. I said look at the value you can see when you stand on the footpath and look up. Close to 50,000 square metres of building. I got no interest whatsoever at 200 million so I strengthened it. Now, of course, it is probably worth closer to the 400.
Are there any properties you have sold that you wish you hadn't?
No, because to the best of my knowledge, I sold properties in order to go a step higher.
What about a property that you had a chance of buying that you wished you purchased?
I can't immediately think of one. There were plenty of opportunities and you can only buy so much. No, I can't think of any.
You know a lot of my properties, Kevin. Which one do you think I never should have sold?
The only one that comes to mind may be Tory Street the retail.
Yes.
I am only saying that because of the large land area other than that I can't think of any other one.
I remember selling that one. It was all part of buying HSBC tower. As you know, I went into HSBC tower as a 25% shareholder. Progressively, I bought out the other shareholders. Selling properties enabled me to do this.
When you talk about your journey, I can understand why you don't look back and say I wish I had kept that building, because if you had done that you would not be where you are today.
Selling so long as you sell and invest in something bigger. If you have a total asset of 50 million and it goes up 10%, it's not the same as 100 million, which goes up 10%.
If you went back to the times when you were buying, say, Crown House on The Terrace and Unisys House in Thorndon Quay, what did you look for in a building when you were buying?
Probably the opportunity to add value because of my practical involvement in improving buildings. I would therefore look for an opportunity to add value using my skills. I would not buy something I could not add value to.
Polo House. What value did you add there?
Four fold. I purchased it for $1,050,000 and sold it for $4,500,000.
When you purchased the building from Robert Jones Investments after you took ownership, did you do anything to the building in terms of adding value?
For a starter, I added two more storeys. It was just a warehouse used by a Chinese merchant for storage. Down below was a motorcycle shop. It was not office space. I turned it into office space. I changed the lift into a passenger lift. It was a classic add value situation.
Another one was 85 Ghuznee Street. I bought it with a very, very low deposit. I think the price was $1,050,000. I only had a $50,000 deposit and a long settlement date. In that time, I divided the full floors to half floors. I had it fully leased by the time I came to settle and the value was sufficiently high I could borrow the rest of the money.
So what advice can you give to someone starting their investment journey?
Take a risk if you can afford the loss. I was in the position of having nobody dependent on me, so I could take some very hair-raising risks.
Did you feel the hair-raising risks?
I wasn't worried about the loss, but I would be angry with myself if I misjudged something.
By all means, take risks if you can live with the absolute downside.
It sounds like Precision Grinders was important to you for the cash flow.
That's right, it was my backstop.
How much does the philanthropic work you do drive you to develop the portfolio?
I enjoy it. I just enjoyed the whole challenge. I never needed the money. I just did it for the challenge, for the sake of it.
And also knowing that you could give to the people less fortunate
No, that was not in my mind in my early stage; it didn't come until much, much later in life. For the first 30 to 40 years, I just concentrated on doing as much as I could for no particular purpose other than I enjoyed doing it and the challenges.
What about Dorothy? How important has she been?
Absolutely. Dorothy was my absolutely right hand in doing all the office work and supported me in all ways, including on building sites.
When you were buying a property did you involve her in the decision whether you should buy that property or not?
I would talk to her, yes, and use it as a sounding board, but I would say I can't think of any instance where she made any objection or positive encouragement. No she left it always to me.
So no positive encouragement.
We would debate it, of course, and discuss it in many ways back and forth and so on, but never did she say you should buy it or not. I liked the pros and cons from her point of view, but I would say the decision was always clearly mine. She trusted my judgement. Her contribution to running my portfolio was absolutely valuable in all respects. I probably wouldn't have done it without her contribution or support.
If you had your time over again, you could go to university and get a degree in property and then become a property investor?
No. I have done it the other way around. I created my wealth on property and was granted an Honorary Doctorate from Victoria in commerce.
I guess what I am saying is, do you think property is either one of those things you have a feeling for or you don't?
Yes and more important, whether you can put hands on and do a lot of things yourself. You are not dependent on other people and there are endless little things you can do yourself. First of all, it is done. Secondly, you don't have to chase them up and have it done again or have a dispute or pay for it. Property is 100% better if you have practical inclination and are hands-on. If I was not hands-on, I would not have succeeded, absolutely not.
Enough on property - What is your favourite car Mark?
Now at my age, a Rolls-Royce Phantom 8.
Going back 30–40 years, a Ferrari, of course.
I bought my little blue Ferrari Dino in 1974. I bought it brand new, and it was the last one ever made.
How did you feel when you got that car, Mark?
Very good, but I was driving a Porsche before that. I went to Auckland to see Dorothy off because she was off to work in the islands. We had some spare time so we walked around the car yards and there was Continental Cars with two cars in their showroom. One was a white Porsche and the other a blue Ferrari. Dorothy said "buy the blue one you had a white one before". That is the time when she made one of the decisions.
Is that your best investment?
By far.
Is that right. What would it be worth now?
About $700,000. I am gifting it to Southwards Car Museum on permanent loan.
Footnote
I am very lucky. I have found in Wellington the city's successful investors and developers have always been very approachable. They always have time available so long as it's not small talk. They have all taken different paths and have stories to tell. Thanks for your time, Mark, and the very enjoyable chat. On behalf of the people of the Wellington region, thank you for your generosity.
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