Tower Trust sues defaulters in $25m case

Friday 2nd March 2001

Park Terrace: Tower Trust is taking 21 defaulting buyers to court

By Chris Hutching

Tower Trust is suing at least 21 defaulting buyers of apartments in the $25 million Park Terrace development in Christchurch, it revealed yesterday.

Tower is protecting the rights of investors in a $16 million bond issue that funded the 115-unit apartment Park Tce building and this week gave investors an update on proceedings saying it was pushing ahead with the action in the High Court.

But the court case that will determine whether the contracts are enforceable may also crystallise the position of any bondholders who may be considering legal options.

Tower Trust is monitoring several bond issues where payment is nearly due or overdue to investors including a $24 million issue that funded Auckland's Metropolis apartments and is due for repayment in May; the $8 million Ballantyne bond issue that funded a stalled lifestyle development at Katikati; the Park Tce development where the building is complete but settlements are outstanding; and the Apple Fields Rural Super Bond Superannuation Scheme which Tower has nearly finished winding up.

Tower Trust general manager Glenn Clark said there had been dozens of successful bond issues in recent years but the apartment market had tailed off since the America's Cup and the other bond issues had unique and complex problems.

Property bonds surged in popularity after 1997 when interest rates fell and promoters and small investors searched for higher yielding investments. Trouble is many of them failed to equate the higher returns of around 12-14% with the higher risk inherent in second ranking mortgage securities. Rosy forecasts were often accepted without question.

Typically, bank lenders ensure they have first ranking mortgages in such developments and will get paid out before bondholders in the event of difficulties.

Some of the most active players on the scene recently include financial adviser Money Managers which promotes bonds to clients, UPC Securities (part of Marac) which organised many issues, and Tower Trust which acts as trustee. Other promoters include St Laurence and Belgrave Securities plus some smaller operators.

UPC Securities general manager Alan Laing said his company had not organised any such issues in the six months he has been at the helm since Perpetual Trust took over the UPC/Marac group. The company had been unable to find an opportunity "... that sits comfortably with us ... ." There was also more competition with a greater number of players in the bond market, according to Mr Laing.

He reiterated the vast majority of bond issues performed as promised and some of the ones under scrutiny had particular problems. He said he could think of about 25 bond issues which had fully satisfied investors and developers.

The Park Tce development was possibly unique because investors claimed they were told by sales agents how to set up a company in order to claim GST and use it as a deposit for a deferred settlement. They expected to sell their apartments before settlement date. Some of them have subsequently been assisted by National list MP and lawyer in Christchurch Alec Neill.

Tower Trust said lawyers Duncan Cotterill were acting for Park Tce Developments (1999) Ltd in taking action against defaulting buyers and if the action is successful the buyers would be pursued to bankruptcy "... if it is economical to do so." The outcome of High Court proceedings is expected to be known near the end of July.

Directors of Park Tce have agreed to buy apartments to the value of $2 million if purchasers default. Real estate company Cowdy and Co has been appointed to market the apartments.

Meanwhile, Tower Trust has nearly worked through a winding up scheme for the Rural Super Bond Superannuation Scheme set up by Apple Fields, recovering 97c in the dollar so far with expectations of full recovery plus some interest if a final quibble about surplus funds can be overcome without resort to legal dispute.

The Ballantyne bond promoter, Doug Somers-Edgar of Money Managers, and Christchurch investor Richmond Paynter, were finalising terms with Tower Trust which should see a rescue recovery for bondholders' capital (excluding interest) of about 85%.

But the biggest bond deal Tower Trust was monitoring was the $24 million bond issue that has funded developer Andrew Krukziener's 38-level Metropolis apartment development. A report on progress was recently sent to Money Managers and Tower.

Tower's bonds

$24 million to fund Metropolis development in Auckland.
$8 million to fund Ballantyne lifestyle develop-ment at Katikati.
$16 million for Park Terrace development in Christchurch.
$60 million Rural Superannuation Scheme set up by Apple Fields.

Comments from our readers

No comments yet