Tower exhorts developer to fulfill its obligations

Friday 25th May 2001

HIGH COURT ACTION: The developer of Christchurch's 112-unit Park Tce apartments has repeated his commitment to underwriting $2 million worth of collapsed sales but he may not have to find the money if he is successful in the High Court against apartment buyers who have defaulted

By Chris Hutching

The developer of Christchurch's 112-unit Park Tce apartments, Graham Beirne, yesterday reiterated his commitment to underwriting $2 million worth of collapsed sales.

He may not have to find the money if his company, Park Terrace Developments, is successful in a June 13 High Court hearing against 33 would-be apartment buyers who have defaulted on purchase contracts they signed.

The High Court hearing may determine how soon Park Terrace Property bondholders are repaid the $7 million of capital that they were due back last October.

Some of the defaulting apartment buyers have complained about succumbing to a "hard sell" approach and allege they were told how to set up a company to claim a GST return for a deposit, expecting that a hot property market would ensure their apartment would be on-sold before settlement.

But anyone constructing such an argument would be on extremely shaky ground, Mr Beirne said.

"The GST reclaim system has worked well enough for sound commercial companies but I guess it's exposed a weakness here in the residential market."

BNZ is also owed about $5 million, according to Mr Beirne, who said Park Tce Developments is investigating ways of repaying bondholders as soon as possible.

One of the options Mr Beirne is being encouraged to take by the trustee of the bonds, Tower Trust, is to fulfill his obligations in underwriting $2 million worth of unsold units. So far he and his partners have come up with $1 million for five of them.

Mr Beirne attained media profile last year when he sold his Fendalton property for a Christchurch record at the time of $2.5 million, using the money to build a new one.

Tower Trust general manager Glenn Clark said he has had lengthy discussions with directors of the development company "... to encourage them to complete their underwriting obligations." But the underwriting agreement does not specify a time in which the underwrite must be exercised.

The recovery of much of the money depends to a degree on the outcome of a High Court hearing set down for June 13 against the 33 buyers who have refused to settle.

Park Tce Developments directors have written off proceedings against seven buyers because they have no money to even cover the cost of legal proceedings. Their deposits will be seized and the apartments resold.

In the meantime, 16 apartments have been leased by Park Tce Developments to help cover costs and Mr Beirne said the company intends seeking resource consents so some units can be used as hotel accommodation.

There are 10 of the 112 apartments that were never subject to sale and purchase agreements. Cowdy and Company has been trying to sell them - as well as the unsettled apartments - recently, without success because lawyers have advised buyers to hold off and wait for cheaper deals.

A potential investor said he had been offered one of the apartments this week at a discount of about 6%.

Mr Beirne said BNZ was happy with progress while Tower Trust was playing "pretty hard ball."

"In a worst-case scenario we've still got enough equity in the unsold apartments to cover the bonds. There's about $3 million profit in the complex and clearly as each apartment gets sold the position gets stronger. Neither Tower nor BNZ want any fire sales."

"I wouldn't think there's going to be a catastrophe. They (investors) may get no more interest but that's not the end of the world. They got interest for two years. They'll probably miss out on nine months' interest, so maybe they'll average out an 8% return overall. They were getting about 11% for two years from Money Managers, who put the thing together."

"I'm not really a property developer. I sell cars and I picked up this development after it was launched.

"But with a bit of patience and common sense I'm sure everyone will come out of this OK," Mr Beirne said.

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