Focus: David Parker announces the Government is to apply a new national interest test to overseas investment rules. Video / Mark Mitchell
A wealthy American couple have been forced to sell an exclusive waterfront property for a massive loss after breaching foreign buyer rules designed to protect sensitive Kiwi land.
New York fund manager and financial advisor Michael Crandall and his wife Michele Esposito purchased a 20ha lifestyle block at Mataka Station in the Bay of Islands in 2013 for $1.73 million.
But they offloaded it in February this year for just $600,000 while under threat of prosecution for breaching the Overseas Investment Act.
The undeveloped site is one of just 30 sections on the station which sits on 1169ha of natural farm and conservation estate boasting one of the country's largest populations of native kiwi.
The land was considered "iconic" by the Overseas Investment Office (OIO) and the couple had to apply for consent under foreign ownership rules before the sale could proceed.
A condition of the sale was to carry out a native plant restoration programme over nearly 5ha of the section.
Michael Crandall is a fund manager and financial advisor at Morgan Stanley investment bank in New York. Photo / Supplied
They were also required to file annual reports to the OIO and pay a $75,000 "donation" to support a project at the neighbouring Rangihoua Heritage Park to build a walkway and architectural feature.
Crandall and his wife live in the US. He works for global banking giant Morgan Stanley providing financial advice to wealthy individuals investing tens of millions of dollars in international hedge funds.
Documents obtained by the Herald under the Official Information Act show the couple failed to lodge annual reports for three consecutive years - incurring $1500 in administrative penalties - and ignored repeated OIO requests for information about the tree planting programme.
The OIO grew so concerned at the couple's non-compliance, investigators referred the matter to Crown Law to commence a High Court prosecution last year.
The OIO wrote to the couple in July giving them notice that they must dispose of the property for failing to meet the conditions of their consent.
"The consent holders have repeatedly breached the rules," OIO senior solicitor Anna Sinclair wrote in a June report titled Crandall & Esposito Options Paper.
"The consent holders are uncooperative and have failed to communicate with us on multiple occasions."
Their lack of cooperation demonstrated "they're not quality investors and that they clearly do not appreciate that it is a privilege to acquire sensitive assets in New Zealand".
Sinclair warned there was a risk the couple would continue breaching the rules if the OIO did not take enforcement action, undermining public confidence in the integrity of our foreign land ownership regime.
Then in March this year the couple's lawyer wrote to the OIO advising the property had been sold to a "non-overseas person who is not an associate of Michael Crandall or Michele Esposito".
The OIO confirmed to the Herald it was sold in February to Whale Bay Ltd for $600,000 - $1.13m less than the couple paid in 2013 and well below its current CV of $2.09m.
US couple Michael Crandall and Michele Esposito were forced to sell their exclusive Mataka Station property in February after breaching foreign buyer rules. Photo / Supplied
After reviewing the sale, the OIO was satisfied the disposal met foreign buyer rules and legal proceedings have now been dropped.
However, Mataka Station's original developer Evan Williams said he was "astonished" to learn about the OIO enforcement action.
"We knew nothing about it all."
He said nearly half the station's properties were owned by foreigners who had been through the OIO process without incident.
Wealthy overseas owners had injected up to $1m back into the community by financing tree planting, kiwi research and local education programmes, he said.
He was not aware of the couple ever having visited the property and said no one on the station had ever met them.
The $600,000 sale price was "odd" given what the couple had paid for the land.
Asked if the couple ever completed the required tree planting, OIO group manager Vanessa Horne said they had not directly responded to questions.
"This suggests they did not comply."
In deciding to grant the couple consent, the OIO "relied on promises".
"After consistently failing to provide annual reporting, we were not confident they were meeting their conditions of consent and required them to dispose of the land.
A wealthy American couple bought the exclusive Waiheke Glasshouse in June 2015 but were forced to sell it in December 2018 for a big loss. Photo / Supplied
"The Overseas Investment Office would like to remind consent holders like Michael Crandall and Michele Esposito – who agree to undertake work as part of their consent – that they need to take their obligations under the Overseas Investment Act seriously.
"The Overseas Investment Office will continue to take action against investors that don't comply with their obligations under the Overseas Investment Act."
The case is the latest in a series of enforcement actions taken by the OIO against foreign investors flouting our land ownership rules.
And a Korean doctor was convicted and fined $100,000 in February after he and his lawyer concocted a plan to hoodwink the OIO over the purchase of a $3m Auckland property.
