KEY POINTS:
A group of about 22 Blue Chip investors is to appeal to the developer of a central Auckland block to let them off buying apartments they have no hope of affording.
At least a third of the apartments in the 174-unit Stadium development are due to be purchased by Blue Chip investors. As part of an unusual Blue Chip investment product, investors paid deposits on the yet-to-be built apartments on the understanding they would never have to actually buy them.
Now, with the collapse of the scheme, they have been left holding sale and purchase agreements they cannot settle on. The Business Herald knows of at least 60 apartments in the development which are affected in this way, and it is thought there are more Blue Chip investors in The Stadium who have yet to come forward.
Tauranga Blue Chip investor Robert Steedman is co-ordinating a group of 22 Stadium clients with about 45 apartments between them. Through barrister Daniel Grove, they plan to approach Perron Developments, the developer of The Stadium, about reaching some kind of settlement.
Steedman said most of the investors were retired or near retirement, and many were "on their last cent".
"They're just sort of throwing in the towel. There are some really sad cases out there."
Another barrister, Zeljan Unkovich, is representing eight Blue Chip investors who have 15 Stadium units between them. He said he called a meeting with the directors of Perron "quite some time ago" and told them most of his clients would not be in a position to settle on the apartments.
"Their response was one of unpleasant surprise, and they're worried."
Since then Unkovich said he had also called a meeting with Neil Bell, a director of the Blue Chip franchise group of companies - some in liquidation - to ask about the contracts' validity. "He turned up, and was as helpful as he could be under the circumstances," Unkovich said.
Daniel Grove said he planned to write to Perron. He said the best solution for the investors would be a settlement, avoiding litigation.
"The vast majority are pensioners, beneficiaries, or have an income of $20,000 a year - there's no way they can complete."
Unkovich also said a settlement would be the most desirable outcome.
"I think the developer might need to say, 'Well we'll simply let these people go because it will be just a waste of money to send them to the wall."'
He added that the developer's bankers might need to show some "moral conscience".
Perron Developments did not return the Business Herald's calls.
Robert Steedman said he hadinterest from around 20 investorsin contributing $2000 each to a fight-ing fund to help with legal bills.
The Stadium investors have found themselves in this situation because they signed Premium Income Product, or PIP, deals with Blue Chip.
Under a PIP, investors put down a 10 per cent deposit on an apartment yet to be constructed. They signed a sale and purchase agreement but Blue Chip guaranteed that it would buy the apartment just before completion, thereby relieving the investor of the obligation to buy. In the meantime, Blue Chip paid the investor a 16 per cent "option fee" on their deposit.
At the end of the arrangement the investor was to get the deposit back, plus having earned 16 per cent return.
Steedman said there was a mixed level of understanding among investors when they took out the PIP schemes.
"There were certainly statements along the lines of 'of course you'll never have to buy it' and 'Blue Chip'll never fall over'."
PAIR GUIDED BY PREVIOUS GOOD RETURNS
Robert Steedman is still hearing out of the blue from worried Blue Chip investors who have put deposits on The Stadium apartments - the latest as recently as yesterday.
He fears there are more out there.
They are in the same position as himself.
Eighteen months ago, he and his wife put a 10 per cent deposit on two $360,000 apartments in the yet-to-be constructed development, on Auckland's Beach Road.
They did this through Blue Chip PIP schemes, unusual financial products that paid investors an impressive 16 per cent return on their deposit.
But the investors were told they would never need to own the apartments - just before completion Blue Chip would exercise a "deed of nomination" and buy the properties, returning the investor's initial deposit.
Now, with the collapse of Blue Chip, the Steedmans are faced with buying over $700,000 of property they don't want and can't afford.
The couple did not consult their lawyer. By the time they took out the PIPs they were veteran Blue Chip investors, having bought into the Gulf Harbour Lodge four years earlier.
"And for four years it ticked over beautifully. It was doing exactly what they said it would do.
"And so when you're offered this other thing, and it was just a short term, quick turnaround thing, you didn't probe and ask too many questions because you thought look, the proof of the pudding ... "
