CITY Pacific’s bankers have called in the receivers, bringing to an end the brief but tumultuous life of the colourful Gold Coast property developer.
As news emerged last night that Commonwealth Bank, acting to protect its $100 million in loans, had appointed receivers from PPB, City Pacific associate and likewise-suspended ASX company CP1 lapsed into voluntary administration. Ferrier Hodgson was appointed.
The 11,000 investors stranded for more than a year with no distribution nor chance of redemption in City Pacific’s former flagship fund, the First Mortgage Fund, remain solvent for now under new management. Though the demise of these two City entities means more loans to the fund will be in strife, ergo, even less value to be realised for the fund’s distressed unitholders.
Until last month, City Pacific received $30 million a year in management fees for running its First Mortgage Fund. When it conceded defeat in a court battle over these management rights on July 20, it was only a matter of time until the death knell. Despite the management fee income, City still notched up a $74 million loss for the half-year to December.
Rival fund manager Balmain Trilogy recently wrested the rights to manage the FMF and its $630 million in assets from City Pacific. Originally, these assets had been valued at more than $900 million.
Even before the subprime crisis in mid-2007 and the global meltdown last year, the writing was on the wall for the mortgage fund operator. Dominated by founder and Gold Coast entrepreneur Phil Sullivan until he left last year, City was always a risky proposition due to leverage and a plethora of opaque corporate structures and related party transactions.
Mr Sullivan’s model had been to advertise and market heavily to retail investors. It was a ‘‘bricks and mortar’’ spiel: invest safely in property and receive a handy 8 per cent yield.
These savings would go into the First Mortgage Fund, and City Pacific as manager of that fund would ‘‘upstream’’ this money into its own property developments or into loans to its property development clients at a higher rate. Most of City Pacific’s retail clients did not understand their savings had gone into speculative property developments. There were no professional investors in the City fund and City Pacific’s institutional shareholders had fled the share register two years ago.
Untangling the City entities is formidable. FMF is owed some $80 million by CP1’s Marina Cove development. Moreover, it is also owed more than $200 million by developments managed or linked to City Pacific. More than 90 per cent of the fund’s loan book is in default.
