Cera staff running own property business on the side
Canterbury Earthquake Recovery Authority's (Cera) staff employed to bring investment to Christchurch set up their own company through which investors would pay them a fee on private property deals, a Stuff investigation has found.
The senior public servants were employed by the Cera investment facilitation team, but at the same time had their own company which offered investors property proposals in the hope of earning a large finder's fee.
The private dealings have emerged in relation to the sale of the damaged Youth Hostel Association (YHA) building at 273 Manchester St in late 2014.
Emails and company documents show three Cera staff working for the investment team – Murray Cleverley, who was manager of the Greater Christchurch Investment Strategy, and two investment facilitators, Gerard Gallagher and Simon Nikoloff – were involved in the transaction at the same time as being employed by Cera.
Cleverley is a property investor and the chairman of the Canterbury and South Canterbury District Health Boards. Nikoloff and Gallagher work for Cera's successor Otakaro Ltd, which is tasked with delivering the Government-led anchor projects and managing Crown assets, including surplus land in the central city and the residential red zones.
The Cera staffers say they were entitled to do private deals and a company they set up to do so was formed "with the full knowledge of our employers".
The three men were equal shareholders in a company called Project and Investment Management Ltd (PIM) which was formed in August, 2014. Nikoloff was installed as its director.
Stuff has learned that Gallagher and Nikoloff approached the Youth Hostel Association in what it perceived was their capacity as Cera staff, around the same time as the company was formed.
The two Cera staffers then began promoting the building, and other properties, through their private business, to Sydney mining services tycoon Kevin Maloney and his representative Ewen McKenzie, a former Australian rugby team player and coach.
In emails sent by Gallagher to Maloney and McKenzie and copied to Nikoloff and Cleverley, he pitched a deal where their company would arrange the purchase of the building for $2.6 million which included a $300,000 fee for finding the building and due diligence.
Another proposal was their company would take $5m to buy the building, repair it and then manage its operation.
"Here is a summary of the options for you in regards to the acquisition of the YHA building on Manchester Street ... We are using (PIM) to complete the transaction – shareholders are Murray, Simon, and myself. I am sure the boys informed you of our ability to do these types of transactions," the email said.
Some of the emails forwarding details about the building were sent from Gallagher's Cera email account address.
The deal fell through when Maloney bought the building directly from YHA for $1.85m.
Another email sent by Gallagher from his Cera account to Maloney indicated details about a property at 159 Hereford St were "to come".
YHA chief executive Mark Wells said he only dealt with Gallagher and Nikoloff in their capacity as Cera employees.
"They had a role where they said they were introducing investors into Christchurch post earthquake and somehow the buyer of the building made a connection and they introduced us."
Business NZ chief executive Kirk Hope said probity was critical for the public sector and very strong processes and frameworks existed for identifying and managing conflicts of interests.
"The public service has very clear guidelines . . . you simply have to think about whether it is an actual conflict of interest and whether it could be perceived by the public as a conflict of interest.
"Bear in mind if you are a public servant that is your choice, if you want to be a private property developer go and be a private property developer.
"If there is no possible way it could look like you were benefiting privately from your public employment . . . then you're probably fine."
When first approached this week, Gallagher denied running any private property business, saying he would not have the time.
Nikoloff initially said he did not have to answer questions about a private company.
Gallagher said: "We were working for the YHA trying to help them divest the building."
He had not dealt with any buildings other than those owned through Cera, he said.
In a later joint statement in answer to written questions, Nikoloff and Gallagher said PIM was formed "with the full knowledge of our employers to review private commercial opportunities throughout NZ that included property in Christchurch.
"The company never traded and was closed in 2016. Any discussions about fees may have revolved around any due diligence services that may have been involved if anything had gone ahead, and would have happened outside of work hours. Nothing happened. A couple of emails may have been sent from a work address – which was not against company policy."
They said the YHA building had been identified as a simple, private business opportunity completely unrelated to any Cera link "but nothing ever came of it".
The $300,000 finder's fee was a usual fee for the transaction, they said.
Cera and Otakaro were fully aware "that we have private business dealings, and still do".
They said the public could be satisfied they did not use their government jobs to further private business interests because "all matters in which we were involved are transparent".
Cleverley said he was a silent shareholder in PIM.
"The company was established to work towards the end of Cera when people were leaving. We saw there was going to be a gap in the market."
Cera was disbanded in April, last year.
Cleverley said he was happy for his staff to conduct private businesses as long as they made it clear they were acting in a private capacity.
"There's nothing untoward . . . nothing against Government policy, public service policy in my opinion.
"What I was really strong on was the separation between work and private life. I would instruct them they weren't allowed to go to a private meeting with their organisation on their jacket."
He would be disappointed if Gallagher and Nikoloff had not ensured other parties were clear in what capacity they were acting in, he said.
He would also have been concerned if other parties thought that his staff could use their Government jobs to help facilitate private deals.
"If somebody thinks they have that influence then we have a problem. No-one in Cera had any influence over this deal (YHA)."
He disagreed he had placed his staff in potential conflicts of interest. He had full trust in his staff to adhere to the boundaries, he said.
"I foster business and entrepreneurship but all we have at the end of the day is our credibility."
Publicity material for Cera's Investment Facilitation Team said: "Cera works collaboratively with all relevant central and local government agencies, as well as economic agencies and the private sector.
"The aim of the Investment Facilitation Team is to provide information on investment opportunities, identifying who potential investors should be connected with, making introductions and connections, removing roadblocks, providing one point of contact across multiple agencies and relationship management," the material said.