Further fallout in Blue Chip property fiasco

A further four large property developments are about to feel the fallout from the collapse of the Blue Chip property investment group as more angry investors head to court.

Auckland barrister Paul Dale is finalising a High Court claim on behalf of more than 200 investors wanting to cancel contracts they signed with Blue Chip, which could force them to settle purchases of apartments they don't want.

The contracts were part of highly controversial Premium Income Product or Joint Venture schemes Blue Chip promoted, which Dale claims were illegal for several reasons, including breaches of the Securities Act.

Dale has already commenced similar proceedings on behalf of 49 investors who want to cancel contracts for apartments in the newly-completed Barclay building in Auckland's CBD.

As a result, the investors' deposits have been frozen and the Barclay's developers, Greenstone Group, have headed to the negotiating table to try to thrash out a deal.

But the legal moves have opened the floodgates for similar actions by other investors.

Dale is close to filing similar claims against four more apartment projects which could leave their developers between a rock and a hard place.

They could try to force settlement of the contracts already in place through the courts. But that process would probably mean they would be unable to draw down the investors' deposits while the case worked its way through the courts, a process which could take several years. In the meantime, they would probably also be unable to resell the apartments to new buyers.

This could leave them with empty apartments and mounting interest bills from the financiers who bankrolled their projects.

The alternative was to try to agree new terms with investors, but that may not be easy either.

Many Blue Chip investments were believed to have been promoted with inflated valuations, a problem compounded by the downturn in the property market.

This will concern both the investors who had signed agreements to buy apartments through Blue Chip, and the developers who built them, because if the original purchase agreements fall over, they may have to resell them, possibly at much lower prices.

It will also concern the projects' financiers, particularly Westpac which was the principal funder for all five of the projects about to face litigation from disgruntled Blue Chip investors.

Westpac has mortgages securing up to $316m over the five projects, while finance companies Hanover, Babcock & Brown and MFS Boston also have substantial sums at stake.

Westpac is understood to have lent aggressively into the investment property market during the recent boom and was the principal lender for many Blue Chip-related projects.

A Westpac spokesman declined to comment on the bank's lending activities.

THE AFFECTED DEVELOPMENTS

* The Bianco

A 157-apartment complex nearing completion just off the top of Queen St in Auckland's CBD.

Developed by Norwich Enterprises, ultimately owned by experienced developer Tim Manning.

As well as selling the Bianco units through Blue Chip, Manning was also a significant shareholder in the company when it transferred its sharemarket listing from the NZX to the ASX in 2006.

The Bianco project is being funded by Westpac, which has secured up to $73 million over it and Boston Finance which has security for up to $27m.

* Icon Central

A 156-unit apartment building due for completion next March in St Martins Lane overlooking Grafton Gully in Auckland's CBD fringe.

Developed by Paxton Pacific Group, which has completed apartment projects in Auckland, Christchurch and Queenstown.

Funded by Westpac which has secured up to $81m over the project and Babcock & Brown Real Estate Finance, which holds security for up to $27m.

Paxton Pacific director Len Ross said the company was in touch with buyers who had signed up for apartments in the building, all of which were sold through Blue Chip.

"Everyone's circumstances are different and you can't get blood out of a stone.

"But at the end of the day, while we feel [sympathy] for these people's positions, the bottom line is that they entered into a sale and purchase agreement and that was to purchase a property," he said.

* The Barclay (Albert St) and Chatham (Pitt St) apartment buildings, both being developed by Greenstone Group.

As well as selling the Barclay and Chatham units through Blue Chip, Greenstone was to be involved in the development of a resort hotel planned by Blue Chip founder Mark Bryers.

The Barclay is being financed by Westpac which has secured up to $52m over the project and Boston Finance which has secured up to $15m.

The Chatham, which is at a much earlier stage of construction, has been financed so far by Westpac, up to $10m and MFS Boston up to $1.8m.

* Stadium, a 174-unit apartment building being developed near the Vector Arena in downtown Auckland by Perron Group, a developer of high-quality apartment and hotel buildings, mainly in Auckland and Queenstown.

The Stadium has been mainly funded by Westpac which has security for up to $100m over it and Hanover Finance, which has security for up to $50m.

- © Fairfax NZ News