Plug pulled on tower backers

By ANNE GIBSON

Two companies which helped to finance Auckland developer Andrew Krukziener's glamorous Metropolis apartment tower have been put in receivership in an effort to recover money for investors owed $34 million.

Bond-holder trustee Tower Trust has appointed Michael Stiassny and Grant Graham of Ferrier Hodgson as receivers of Pacific Properties (Metropolis) and Courthouse Capital.

Pacific Properties (Metropolis) raised money for the development by issuing junk bonds to private investors. Courthouse Capital holds a subordinated second mortgage over unsold Metropolis penthouses, apartments and shops in the Auckland tower. Krukziener is a director of both companies.

Tower Trust acting chief executive Glenn Clark said yesterday that the appointment was prompted partly by the success of apartment sales in the tower lately. That had helped to reduce the size of the first mortgage, originally held by ANZ Bank, and meant the receivers were now more likely to get some money back for bond-holders.

A source involved in the deal said the receivership was an attempt to stop money "leaking out into on-going expenditure", funding Krukziener's management fee and other costs.

Money from apartment sales during the past two years was not going to bond-holders, but was being used to fund other costs, the source said, emphasising that the two companies in receivership did not own the building.

Clark said the reduction of the first mortgage was partly the spark for the receivership.

"Until late last year, ANZ Bank held a first mortgage over the remaining unsold Metropolis property but this was acquired by Structured Finance, a company which is part-owned by interests associated with Doug Somers-Edgar of Money Managers," Clark said.

"Clients of Money Managers own a significant number of the bonds. While sales of the Metropolis assets over the past two years have substantially reduced the amount owing under the first mortgage, after careful consideration Tower Trust has decided it is in the best interests of bond-holders to appoint receivers to take control of the second mortgage position."

Clark said in January that he was worried about Somers-Edgar's involvement.

As trustee representing long-suffering bond-holders, he said he was unhappy that a mortgage over the troubled building had been transferred to a company linked to Somers-Edgar. He said there was "potential for a conflict of interest" given that Money Managers, Somers-Edgar's investment firm, originally marketed the junk bonds.

The first mortgage to Structured Finance is understood to be about $1.5 million and is expected to be repaid soon, depending on sales in Metropolis.

That means the bond-holders could be in a better position, but they are still owed money.

"As at February 28, the total amount owing to bond-holders for principal and the unpaid interest was approximately $34 million," Clark said yesterday.

He said bond-holders would receive about 50 per cent of their original investment back.

"Earlier this year Tower wrote to bond-holders advising them that the amount they are likely to be repaid will be only 50c in the dollar of the amount they invested.

"Tower Trust is still confident that, notwithstanding the need to appoint the receivers now, a repayment to bond-holders of somewhere close to that figure will be achieved."

Investors who bought $21 million worth of Metropolis subordinated property bonds in late 1998 were due to get their money back on May 20, 2001.

A detailed letter will be sent to bond-holders next week explaining the situation.

Krukziener developed the 38-level tower in the late 1990s but slow apartment sales and difficulties leasing retail space caused a cash crisis.

The luxury tower was valued in 1998 at $180 million by Richard Ellis and is partly operated as a hotel.

The Metropolis story

* The 38-storey Metropolis apartment tower opened in December 1999.

* Its developer, Andrew Krukziener, raised $21 million from about 1700 private investors through a bond issue in September 1998, offering interest at 14 per cent.

* The bonds were issued by Pacific Properties (Metropolis).

* The investors were due to be repaid the principal and interest of $4 million on May 20, 2001.

* They have yet to be paid.

* Krukziener blamed poor apartment sales for the bond default.

* Pacific Properties was placed in receivership yesterday by the bond-holders' trustee, Tower Trust.

* Bond-holders are now owed $34 million.

* Tower Trust estimates they will get 50c in the dollar.