Property schemes 'hit credibility'

By ANNE GIBSON

A building trades lobby group has complained to the Securities Commission about schemes to raise money for construction and property ventures, saying people's confidence in the industry is being threatened.

Peter Degerholm, of the Building Subcontractors Federation, has written to the commission about a scheme from Auckland property financier Strategic Finance, which is seeking to raise $10 million from the public to "strengthen its capital base", according to its chief, former All Black Jock Hobbs.

Strategic says in its investment statement that it might not return people's money at the end of the four or three-year term - offering an attractive interest rate of 11 and 10 per cent respectively - but could convert the money into shares in Strategic.

Degerholm attached a Herald article about the Strategic redeemable preference share scheme to his complaint to the commission, as well as another Herald article of May 22 about the findings of Bondwatch, which rated investment products and gave the thumbs-down to many property fundraising ventures, saying they were risky.

Degerholm told the commission that some schemes were making people afraid to invest in property because of defaults on loans and poor returns.

"The federation is concerned that investment opportunities are being floated that appear to be completely lacking in substance," Degerholm said.

"Such schemes strike at the credibility of the building industry and undermine investor confidence.

"We believe that the funding arrangements on Princes Wharf actually contributed to the cashflow pressures on Hartner Construction and were a significant cause in the timing of Hartner's failure early last year.

"Several high-profile investment scheme failures have been reported recently, in which the unsecured investors bear all the risk of failure and under which the level of disclosure of risk would seem inadequate or misleading."

But Hobbs said yesterday that Strategic had assets of $115 million and a significant base.

"I utterly refute the suggestions that the deal lacks substance.

"Strategic is a sound company and it will announce a strong result at the end of the month. It has never made any defaults," he said.

Its clients included David Henderson's Kitchener Group and Tony Gapes' Redwood Group.

Hobbs said Strategic had lent money on Wayne Hartner's luxury boat - sold in the cash-up of the collapsed Hartner Construction and Hartner Group - but all the interest and principle was repaid.

He acknowledged that Strategic had altered the terms of some products, such as the return to investors in a property syndicate that put money into 86 Lunn Ave in Auckland. Strategic said last year that interest payable on mortgage bonds was cut back because of a drop in the property's value.

Last month, the Securities Commission forced Money Managers' offshoot Dominion Funds to alter its statements about returns payable on its Harbourside Property Fund, which is raising $10.5 million to buy the $14.5 million Microsoft House in Viaduct Harbour.

The commission said in November it was looking into contributory mortgage schemes - used by property owners, developers and others needing finance when they cannot get money from a bank or more traditional lending institution.