Brothel bros' empire worth $100m
When Wellington brothel owners John and Michael Chow gather with a few dozen friends and business associates to celebrate Chow Group's 11th year in business on Tuesday night, a cloud of uncertainty will hang over the proceedings.
One of the highlights of the affair was to have been the company's plan to expand into the potentially lucrative Auckland market, where it was extensively renovating the historic Palace Hotel (formerly the Aurora) to turn it into an upmarket gentlemen's club, the industry euphemism for a brothel.
Located across the road from SkyCity Casino, the Palace was perfectly positioned to cater to free-spending men willing to pay for sexual entertainment.
But those plans literally came crashing down when the building began to shift on its foundations and the council ordered its demolition over fears for public safety.
Most of central Auckland's red light venues are clustered around Fort St, a few blocks further downtown, and the Chow brothers' plans to bring organised prostitution into the mainstream entertainment district near the casino had upset some business owners and residents in the area.
However, the Chow brothers' choice of the Palace site to launch their entry into the Auckland market was probably based on a similar strategy they used successfully in Wellington, where they are the leading players in the capital's adult entertainment industry.
They had been quick to realise the business opportunities that became available when prostitution was legalised in 2003, opening Wellington's first legal brothel, Il Bordello, on the city's traditional red-light strip, Vivian St.
Their next venture, the Mermaid strip club and its associated facility, the Splash Club, were more controversial because they were located in the centre of Courtenay Place, the hub of Wellington's mainstream nightlife.
The Chows successfully resisted attempts by the council to curtail those businesses and would have benefited handsomely when planning changes were introduced to prevent similar types of operations opening up in the area.
The plan in Auckland appeared to be along similar lines – get established on a prime spot while planning rules allow it, then rake in the cash once the rules are changed to prevent any competitors setting up nearby.
And the cash-generating potential of the adult entertainment business should not be underestimated. Michael Chow said his Wellington brothels had not been affected by the recession.
So when Chow Group purchased the Palace Hotel property at a mortgagee sale for $3.3 million in 2008, there was no bank involved, and the property remains mortgage-free, suggesting they were funding the purchase and subsequent renovations from private sources.
Chow Group also owns the buildings that house Il Bordello and the Mermaid and Splash Club, and these are also mortgage-free.
The Mermaid and Splash Club property has a rating valuation of $3.5m and the Il Bordello property has a rating valuation of $1.5m.
However, Michael Chow said those arrangements did not indicate a lack of willingness by the banks to fund adult entertainment businesses, but reflected the Chows' own preference to keep their smaller properties debt-free.
And the banks have certainly been willing to fund the Chows' other business ventures.
Although the public spotlight has usually fallen on their adult entertainment activities, that is a relatively small part of their business empire.
The Chows' primary focus is property investment and through various holding companies they own a portfolio of six commercial buildings in Wellington, as well as the premises of their strip club and brothels.The six commercial buildings are all mortgaged to either ANZ or BNZ, securing interest-only loans, a common practice in property investment circles.
The ANZ mortgage, which was put in place at the beginning of October, is secured over the Chows' biggest asset, a nine-level office and retail complex on Courtenay Place.
Collectively, the entire portfolio of six commercial buildings and the three adult entertainment venues have rating valuations totalling $50m, although Michael Chow said the market value of the properties was closer to $100m.
The Chows also own Wellington's largest gym, the Exodus Health & Fitness Club, also located in one of their buildings.
That's not bad for a couple of boys who migrated here from Hong Kong with their parents in 1984.
The Chow family settled in the working-class Wellington suburb of Naenae and the boys began a long association with the Te Aro area on the edge of Wellington's CBD when their parents opened a takeaway bar on Courtenay Place.
The boys took over the business in 1997 and they were eventually able to buy the premises, setting them down the property investment path.
Although they tend to be long-term investors, the have also sold off a few of their properties over the years.
The biggest of these was a hotel they developed on Willis St in central Wellington, although liquidation of the hotel's holding company has been held up by a claim from a creditor – a former employee who was awarded $119,000 by the Employment Court.
It appears unlikely that the debt will be paid. The liquidator's report said the company had no realisable assets, although an investigation was under way into the disposal of assets to determine "whether there are any avenues of recovery for creditors".
Looking forward, the brothers are still very focussed on expanding their business interests and hope to eventually have a property portfolio worth more than $500m.
However, the loss of the Palace has thrown a spanner in the works, at least temporarily.
Michael Chow is bitter about the way the Auckland Council handled the demolition and said his lawyers had issued trespass notices against the council and its contractors to stop them entering the site.
He said he had not seen an initial report the council had obtained about the likely cause of the problems that led to The Palace being demolished, although he hoped to have a copy by tomorrow.
"We need to know who is controlling that site at the moment and I need to understand what's happening to my land," he said.
However, the Chow Group may still expand into the Auckland market, possibly in association with overseas investors.
When asked if the company would look at investing in Auckland properties, even if the brothel didn't go ahead, Michael Chow replied: "We'd consider it. Not just me, we have a lot of business friends in Asia."
Sunday Star Times