One of LM's biggest assets worthless

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Returns to LM investors on an interest in residential development Maddison, in Queensland, are likely to be minimal or nil, receivers Korda Mentha have warned.

Monday, June 17th 2013, 3:03PM 2 Comments

LM Investment Management went into voluntary administration early this year.  The LM First Income Mortgage Fund has been frozen since 2009 with $100 million of New Zealanders’ investments in it.
The LM Managed Perfomance Fund is due about $250 million from the housing development, which is being developed by Maddison Estate Pty Ltd. The development firm is headed up by Peter Drake, who was the founder of LM and has been accused of withdrawing huge amounts of money to fund his lifestyle.

Maddison is one of LM’s biggest assets – on paper, anyway.

LM is the second-ranked security after a $22 million mortgage to Suncorp. Suncorp wants to be relieved of its security by the end of the month. If the debt can’t be refinanced, it is likely a receiver will be called in to sell the property. Should this happen, LM investors will likely receive nothing.

The value of the development seems to have been very much overstated. In its report, Korda Mentha said it had repositioned Maddison as a basic residential development, without some of the added extras that had been proposed, such as a wave pool, because the investment would not pay off.

The 108 hectare site was originally intended to include 1458 homes.

The feasibility of the development had been overstated and proposed sale prices were too high, the report said.  The original plan had proposed huge increases in revenue over a short timeframe – a plot that sold for $300,000 in the development’s first year was expected to increase to being worth $1.05 million in five years.

Korda Mentha said it was working towards a recapitalisation strategy to secure an orderly exit of Suncorp and deliver a viable development property.

It has spoken to five prominent development companies, which have expressed interest in the project. “30 June is a difficult, albeit achievable, timeframe provided that timely and relevant information is provided.”

It has engaged First Wall Street Capital Partners to look for capital partners internationally.

As an alternative, Korda Mentha said the only ways to achieve any return from the debt in Maddison would be for the unitholders to invest more money. It wants to assess the viability of a restructure by canvassing interest via advisers.

FTI Consulting is in the process of winding up the First Mortgage Investment Fund. It is believed that unit holders will see a big drop from the current 0.59 unit price. It was removed from handling the Managed Perfomance Fund due to concerns over conflicts of interest.

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