Back to basics for troubled $1.5 billion Maddison Estate

Investors in the LM Performance Fund (LMPF), of which Pimpama development Maddison Estate is a large asset, are at risk of not getting their investment back if trustees are unable to refinance a loan to Suncorp.

In an update released by KordaMentha, the LMPF trustee appointed by the Supreme Court of Queensland, Suncorp has stipulated a 30 June 2013 deadline for repayment of a $22 million loan.

LMPF was due to pay Suncorp in March this year but failed to meet the deadline.

Failure to repay this loan may result in Suncorp appointing a receiver to sell the property. The update also emphasised that the return of the existing $250 million investment in the fund will be minimal, and may be nil.

KordaMentha has advised that while the fund holds security over the development, it does not control the landowner, Coomera Ridge Pty Ltd, or the development.

LMIM founder Peter Drake has since provided KordaMentha access to the books and records of the developer, Maddison Estate Pty Ltd, as well as the Maddison Estate development.

KordaMentha and the developer have revised plans for Maddison Estate. It will now be a basic residential subdivision, without star-studded facilities such as a wave pool, volleyball courts, and aquatic centre as previously planned.

With the new master plan, KordaMentha engaged Knight Frank and Colliers International to review the revised layout. Both organisations recommended a decrease in price for developed lots, and a revision in revenue escalation rates.

The update added that previous revenue rate assumptions “were significantly overstated”.

Maddison Estate, a $1.5 billion Gold Coast Queensland residential community project, was marketed as setting residential community estate benchmarks.

With its strong focus on sporting facilities, the developer has attracted celebrity endorsements from the likes of Olympians Sam Riley, Natalie Cook, as well as world champion surfer Kelly Slater.

However, the podium finish success of Maddison Estate at Pimpama could be a long time off.

Property Observer has reported previously that Maddison Estate is a major asset of the LM Performance Fund (LMPF), managed by LM Investment Management (LMIM), whose founder is Peter Drake.

LMIM has recently entered into voluntary administration. The Supreme Court of Queensland has appointed KordaMentha and its affiliate firm Calibre Capital as joint trustees of the LMPF. Previously, John Park and Ginette Muller were appointed voluntary administrators of LMIM on March 19.

Most of the $350 million invested in LMPF came from overseas investors, some in Malta.

Investors in the fund have a 60% exposure to Maddison Estate through a $234 million second mortgage, with a smaller $22 million first mortgage to Suncorp, which expired in March.

Property Observer also reported that a “steady stream” of investors are planning to lodge a class action suit against financial planners who recommended they invest in mortgage funds issued by LMIM.

LMIM claimed to have $3 billion in funds under management with investors in 73 countries, according to the Gold Coast Bulletin.

The ABC’s Four Corners reported that LMPF was marketing the fund as a “bank-like facility”, but the claim was withdrawn by LMPF “as soon as it realised the potential for confusion.”

Pimpama, which is 30km north of Surfers Paradise, is the last remaining rural town on the Pacific Motorway between Brisbane and the Gold Coast. That was set to change with Maddison Estate and its landscaping by Jamie Durie.

Maddison Estate covers 118 hectares and has plans for about 2500 dwellings and 800 lots of land. It aims to house 3500 residents upon completion.

In addition to 2500 square metres of retail space, 37 hectares of parkland including 30 hectares of environmental reserve have also been planned.

The parkland was to be divided into six different parks, with a sports focus. According to Maddison Estate’s website, the project’s vision was created “in the spirit of developing our next generation of Olympians and in the lead up to the 2018 Commonwealth Games”.

As such, collaborations with Riley, Cook (pictured below), and Slater should not have been any surprise. Indeed Cook’s association with LMI began when Peter Drake financed her journey to the Beijing Olympic Games in 2008. She was slated to create a sandstorm beach volleyball park in Maddison Estate’s Central Park.

Riley, who runs six swim schools in Brisbane at present, also planned to open the first Gold Coast Sam Riley Swim School in the estate’s Central Park.

Property Observer could not ascertain at press time if Cook and Riley are still tied to the Maddison Estate project, but presumes their engagement is no longer required.

While the world’s first Kelly Slater wave pool was also marketed as a huge part of the project, Surfing Life reported in March this year that the “Kelly Slater Wave Company had entered into ‘an exclusive Memorandum of Understanding,’ to build one of its wave pools on the site, but no contracts had been signed and no money had changed hands.”

Slater also told Surfing Life, “…we aren't actually in business with Maddison as of now, and have been waiting to really understand what the truth of the whole matter is with the company anyway.”

Even with revisions from KordaMentha, Maddison Estate’s Facebook page still shows updates from November last year linking them to the Kelly Slater wave pool.

The project was meant to create an additional 3,500 construction jobs, as reported by the Gold Coast Bulletin.

LMPF’s latest financial report has stated that building companies Ausbuild, Clarendon Homes, Metricon and Plantation Homes have signed agreements with Maddison.

However, a check by Property Observer has found that all links between Ausbuild and Clarendon Homes to Maddison Estate have been taken offline. Metricon’s website has no link to Maddison Estate as well, although Plantation Homes had three listings on realestate.com.au for three seperate lots on the property.

LMIM first took control of the Maddison Estate project in 2010, after a joint venture with Young Land Corporation fell through, as reported by goldcoast.com.au in August that year. Under the partnership, the project was then named Arrowtown.

Coomera Ridge Pty Ltd, where Drake is the sole director, owns around 30 sites in Pimpama. These sites were mostly purchased between 2006 and 2009 according to RP Data records for $89 million, as reported by the ABC.

The Gold Coast City Council moved to speed up Maddison Estate’s approval process in August last year, as reported by ABC News. In October last year, the Australian Financial Review reported that the project had won preliminary approval, with the first 150 lot stage been fully approved.

According to the Maddison Estate January 2013 Project Update, bulk earthworks commenced, paving the way for the first 140 lots. Delivery of the first 29 lots and the first stage of Central Park is anticipated for later this year.

In February this year, a press release stated that the first phase of tree clearing and demolition works were completed, and bulk construction had commenced.

Multiple attempts to contact Maddison Estate’s site office to determine the current state of construction were unsuccessful.

The directors of the LMPF include Peter Charles Drake, who is the founder of LM Investments Management (LMIM), Eghard van der Hoven and Francene Maree Mulder, who both sit on the directorship of LMIM, as well as Katherine Phillips, who became the director of LMIM UK Limited in 2007.

While little is known about Drake and van der Hoven, Mulder has held several managerial positions in commercial mortgages, conveyancing, and the property sector, according to zoominfo.com. She is currently the Executive Director, General Manager Distribution and Product of LMIM.

Phillips was the director of LMIM UK Limited from 2007 to June 2012. In July 2012 she was appointed the director of the LMPF.

According to LMPF’s latest financial report, it has continued to pay investor redemptions, which make up 6% of Funds Under Management. This is a significant decrease from “a high of just under 40%” of redemptions.

At the time, the fund met the objective of maintaining investor capital, and “declared investor returns of 3.00%p.a. to 5.00%p.a. over cash rates whilst maintaining full capital value”.

The report also stated that management fees paid to LM Administration Pty Ltd by the LMPF totaled $11.36 million for the 2012 financial year, up from $1.39 million for the 2011 financial year.

LMPF stated in the report that the amount represents 3.1% of average net assets of the fund, and that it is a “pre-planned increase in management fees is reflective in the growth of assets in the Fund and allows the Manager to employ additional resources required to properly manage the assets to the benefit of the investors”.

The report also adds that the LMPF pays LM Administration Pty Ltd is paid an administration fee of 5% per annum directly from the scheme’s assets.

A disclosure update for LMPF was posted on 31 January 2013, stating that the fund’s assets totalled AUD$401 million.

The disclosure statement notes that commercial loans total $385 million, with the largest mortgage totaling $240 million.