Many people lost their money in the bonfire of SCF’s assets. Shareholders and various borrowers were unjustly stripped of huge sums of money that were then given to others. But an arguably greater injustice was done to a man who had borrowed no money from SCF, nor taken any investment risk. John Coers had invested his time and expertise as a property specialist at Hubbard’s request. He gave great professional service to Hubbard and significantly increased the value of his assets. But Coers was never properly paid for his work, and was powerless to stop the value he created being given away to random people through poor decisions and poor processes.1
Hubbard had land assets that without development were worth little, but he believed that with rezoning and skilled development they could bring in enough capital to restore SCF’s shareholders’ funds and ensure its future. Hubbard had seen value in buying two defunct meatworks near Christchurch at Belfast and Islington. He had also bought in 1987 a former orchard on rich soil near Ashburton. He held the certificate of title in an office drawer for twenty years, watching the land grow in value.
Hubbard needed a specialist who could obtain consent for a conversion to a modern use of land that had significant strategic value. He had bought the orchard for a modest sum and had entered a joint venture with the Gore business owner Ian Tulloch to buy one of the two Christchurch meatworks, lending Tulloch the money for his half share. Hubbard had seen how the Auckland entrepreneur John Sax had converted the old Southdown meatworks in Auckland into highly valuable land. Sax had decontaminated the land (asbestos was an issue) and then had it redeveloped, generating a vast increase in value. Sax had made himself rich with a clever transaction.
Hubbard was an astute asset buyer with a trained eye for untapped value. He was a dreadful moneylender but his vision for spotting potentially lucrative assets was 20–20. He could see that Christchurch needed to grow into the land at Belfast and Islington. Compliance and consent were not his strong suits. He needed an expert development manager. He was prepared to pay for the help.
He came across Coers, an experienced property consultant in Wanaka. The son of a Dutch immigrant who himself specialised in property, Coers was in his forties and had had senior management roles in New Zealand public companies and in London. He had his own company, Cambridge Estates, and had carried out many developments in the South Island. Coers agreed to work for a fee based on time, incentives to achieve key milestones, and a bonus based on a profit share. Coers then turned the abandoned orchard at Ashburton into a stylish suburb with a water feature. Today, Braebrook is an expensive and well-regarded Ashburton subdivision.
Coers also worked on Islington and at Belfast, patiently following the path through red tape to get Belfast rezoned and developed as a residential area, Belfast Park, with hundreds of sections made even more valuable after the Christchurch earthquakes. Islington was eventually rezoned as an industrial park. It, too, greatly increased in value after the earthquakes, as the land was not swampy or prone to liquefaction.
Today, the 189 sections at Ashburton have a combined value of $38 million. Hubbard had spent only a few million in development costs. He had bought the land for $180,000. Islington’s land in its modern industrial park form is today worth around $250 million, according to valuers. Belfast’s 600 residential sections may be worth more than $130 million.
But Coers was not paid for his work at Islington and Belfast, did not receive his performance fees, and was not fully paid for his work in Ashburton. He was not paid despite a court order that he should be paid. When he was paid, during SCF’s stressed times, he was often toyed with: given an unsigned cheque once, an incorrectly written cheque another time. Ultimately, he was left unpaid as an unsecured creditor. He was not paid his full consultancy fee of hundreds of thousands, nor his verbally agreed bonuses that would have been worth many millions, given the value added by his project management. At Islington and Belfast he was one of a few professionals assigned to the work. He was the only professional not paid.
I have known Coers for some years. He is intelligent, experienced, well-informed, thorough and highly professional. He maintains careful records and keeps neatly filed copies of all his correspondence. He is quietly spoken and not flamboyant. He is also still furious at his treatment by those who took over control at SCF.
Coers was not the only one to lose on these high-value-add projects. Maier and later the receivers McGrathNicol decided to discount the Ashburton project at Braebrook, and the receivers decided to sell Hubbard’s interests at Islington and Belfast at little more than Hubbard’s cost, which Coers recalls as around $10 million for each site. Braebrook lost money for SCF, as Hubbard had injected the sections into SCF at an early valuation of $7 million. Maier and the receivers sold forty-nine consented sections for little more than $3 million. The undeveloped balance, land of 14.33 hectares, was sold on the first day of the SCF receivership for $1.3 million. This equated to $8,333 per lot. Developed, the cheapest sections sell for $165,000; many of the others are worth more than double this price.
SCF’s half share in Islington was sold to Sax, who has gone on to make another fortune by decontaminating the land and selling off sites in the industrial-zoned project that Coers had designed and had rezoned. The share in Belfast was also sold at distressed sale prices. Its residential sales programme is now managed by Thompson, the former asset manager at SCF. None of these sales made any sense, certainly not to Coers.2
Hubbard thought SCF would benefit in time by such a large sum that SCF would be significantly recapitalised once the rezoning allowed the land to increase in value. Instead, the value went to those who bought the assets from SCF. Coers’s analysis of the Braebrook project – available on this book’s website – is chilling. In 2007 the development began. By January 2009 the developed sections were valued at $164,600 each. The first sections were sold at an average of $172,300 each. When SCF ran into strife in 2010, its asset management team (Thompson and Mike Coburn) asked Coers to value twenty-five unsold, completed sections, at immediate fire-sale prices.
Coers, with the help of real estate valuers, replied that a price fall to an average of $128,636 per section would result in immediate sales, bringing in $3.215 million. Maier decided to sell them to one buyer within weeks for $80,000 per section. That left Braebrook with 140 unsold, uncompleted sections without title. A few weeks later, the receiver, Downey, on his first day in the job sold the remaining 140 sections for $1.3 million plus GST, a gross price per section of little more than $9,000.3 In each case the buyer, dealing with Maier and then Downey, was Antrim Developments Ltd, a small local firm with entrepreneurial owners including Ashburton builders Gary Thorpe and John Howe. For them, 1 September 2010 was the day they won Lotto.
The sections today are, on average, valued nearer $300,000 each. The cost to the Crown of holding those sections to sell at unstressed times would have been $1.3 million at a maximum of 4 per cent or $52,000 per year. Between 2010 and 2018, that interest cost would have totalled $416,000. The 140 sections would ‘owe’ $1.3 million plus $416,000, a total of $1,716,000 plus the modest cost of completing the work needed to obtain title, which Coers estimates at about $1 million. Duncan Saville might have seen how these properties would have increased in value over time. Maier, Downey and Treasury clearly did not.
Coers endured the indignity of seeing the profits from his work given to random people, his promised payments and bonuses unpaid. He sought to persuade the authorities to stop the carnage at SCF.4 He spoke with Bill English, visited the Financial Markets Authority, urged the receiver to reconsider his behaviour, and sought to pursue the matter through the High Court; all to no avail. His story offers another example of the apathy or the obstinacy of those feeding the bonfire. When Coers spoke first to English, he was optimistic. A co-organiser of the Warbirds over Wanaka air pageant, Coers met English at the air show and spoke at length. English took notes. Action was promised. After meeting English Coers rang me, elated that at last he might see a real response. Nothing happened. Nobody was fired. Indeed, another year passed before Treasury ended the abysmal receivership and took over the remaining SCF assets, transferring them to the Crown Asset Management Ltd. Coers has every reason to believe that wealth he created through his vision, knowledge and energy was handed to others while he joined the taxpayers as a victim of ill-considered decisions.