Text of a letter supplied by Kensington Park developer Patrick Fontein that is being posted to the "sub-contractors and suppliers" working on the Orewa development.
KEY POINTS:
Dear
I have personally wanted to keep you far more fully informed on issues relating to Kensington Park over the last 1-2 months, as that is my personal nature and style. Since early August, as my team and I have tried everything to refinance/rescue the project, I have been under direct legal guidance as to whom I could and could not communicate with and what I could say.
There has been total commitment from all my staff and key stakeholders to try and keep the project going, for which I am very grateful. Personally, I have left no stone unturned. When the market got tough, I put everything I and/or any trust or company I own on the line. In poker terms, I was "all in".
I want to say that during all the refinancing negotiations in the last 1-2 months, I have always maintained that sub-contractors and suppliers should get a fair deal. Some say that creditors are "unsecured" and as such should not need to be considered in future scenarios. I have always strongly opposed this view and still do. It is not in my moral fibre to think this way. Likewise, all purchaser deposits are held in an independent solicitor's trust account.
Most people are questioning why a hugely desirable, award winning development could falter in this way. In my opinion, these are the main reasons:
i) Worldwide turmoil in the finance markets. Financial institutions, worldwide, are collapsing and there is major stress on all banks, including Australia and New Zealand owned banks.
ii) Huge pressures on New Zealand finance companies, 32 of which have collapsed. Most other finance companies are experiencing major stress.
iii) The banks' and finance companies' response to the finance market turmoil has been to progressively tighten their lending/credit conditions on all property developments.
iv) There has been a major review of how land is valued (and thus, funded) within the valuation and finance industry, worldwide and in New Zealand. I will give a real example of a developer in greater Auckland who experienced this situation just last week.
The developer owns a piece of land in greater Auckland that he intends to develop when the market improves. He has owned this land for some time and two years ago, a registered valuer valued the land at $4million. The developer has a $2million first mortgage, which is a conservative loan-to-value ratio of 50 per cent. During the last two years, the land has been well looked after and not altered. All interest payments on the mortgage have been met. The same valuer has now revalued the land and, due to market conditions, has valued it at only $1.5million. This has placed all stakeholders in a very difficult position.
This situation is totally unrelated to Kensington or Kensington Park, and the numbers are different. However, similar issues exist.
v) Collapsed New Zealand housing market. The effect on all developers/house builders/subcontractor/suppliers has been pronounced. Almost all subdivisions have house starts stalled.
So how does this affect Kensington Park?
a) The market changes to valuing land have had a dramatic impact on our ability to fund land.
b) The infrastructure (reasonably) required by the Council is for 750 houses. As credit conditions have tightened, funding this infrastructure has become increasingly difficult...
c) The master-planned Kensington Park concepts have been very desirable and pre-sales at Kensington Park have been extremely strong until very recently. Whilst difficult to explain/comprehend, the high level of pre-sales in a tightening credit market has actually placed increased pressure on the short to medium term cash flow. Sales demand during the extremely difficult market conditions this winter has softened, which has been of major concern to the financiers.
The dollar numbers at Kensington Park are large, very complex and commercially sensitive. I believe it serves no useful purpose for me to discuss these issues publicly or in the media.
I am very proud of the architecture, design and build quality at Kensington Park, as should all the sub-contractors and suppliers. I have heard unfounded insinuations of potential leaking buildings, workmanship issues, ground movements, etc., which are outrageous and without any substance. People who make these comments, and media who publish it, have a lot to answer for.
The net result for me personally is that after 14 years of hard work to grow the Kensington Group of companies and over three years at Kensington Park, I will lose all these companies. I have been very proud of our achievements, which have included winning many national and international awards on our projects. In the end, this now counts for nothing as my family and I will lose everything.
I again apologise for the lack of recent communication. I sincerely apologise for the financial hardship that the project has caused you and your company. In a small way, I hope the above explanation goes some way towards assisting in the current, extremely challenging circumstances.
Yours faithfully,
PATRICK FONTEIN
