In February, the Australian Securities and Investments Commission launched a discussion paper looking at whether further regulation of the private credit market is needed.
“ASIC will continue to place a strong focus on the private lending industry,” a spokesman for the regulator said. “There are well-founded concerns around the lack of disclosure and information around valuations of private assets.”
A view of Evandale estate in the Southern Highlands, which was bought by Hume Coal and, later, Peter Crown.Credit: Tim Bauer
As if to show its teeth, last October ASIC launched legal action against one specialist lender, Oak Capital, for allegedly arranging loans designed to avoid consumer credit protections.
Central to the regulator’s case is that a loan to a company – rather than an individual – does not offer the same protection as a mortgage, thereby denying the borrower the right to make a hardship application or any protection from excessive fees and interest.
Oak Capital has denied the allegations, and the matter is set to play out in court in the coming months before Justice Anderson.
But as private credit has boomed and interest rates have risen in recent years, so have rates of insolvency and distressed lending. ASIC data shows almost 13,500 companies went into administration for the first time last year, up 46 per cent on the previous year. Of those companies, a quarter were in construction.
The historic Mereworth residence in Berrima, with its distinctive mansard roof, was designed by architect John Amory. It was resold by Peter Crown to the Medich family.Credit:
Liquidator Kathy Sozou, a partner at leading advisory and restructuring firm McGrathNicol, traces the local up-tick in private credit back about six years when, following the banking royal commission, the big four banks became more cautious about their lending.
In their place, more second- and third-tier lenders rose to fill the gap.
“In terms of property, sometimes these lenders might be more creative in terms of their lending structure, rather than offer the traditional, run-of-the-mill loan you might get from a bank,” Sozou said.
The multimillion-dollar case
There was nothing run-of-the-mill about the lending arrangements behind Crown’s purchase of the Berrima land aggregation, even before the $101 million price incurred a stamp duty of almost $7 million.
Previously, Crown was best known for his tech investments. He co-founded social impact start-up Ouno, is a director and major investor in software company Ailo, and runs a private family investment office called Coronam.
But in more recent years, the 40-year-old investor and Aston Martin enthusiast has concentrated more on property, buying and flipping big-ticket acquisitions in quick succession.
Crown’s purchase of the Berrima land aggregation is detailed in documents lodged in the NSW Supreme Court, in which he reveals it was initially meant to be funded by National Australia Bank. A few weeks before settlement, however, the bank withdrew its in-principle approval.
Weriton director Graham Werry is a veteran of the property development and financing industry.Credit: LinkedIn
Crown could either forfeit and lose his deposit (amounting to $10.1 million on a standard 10 per cent deposit), or look for other finance.
Private capital and investment specialist Merricks Capital stepped into the breach as the main lender, offering about $60 million. Interest was set at 12.47 per cent a year, with an establishment fee of $1.4 million.
The second and third lenders, with $56 million worth of loans, were Bridge Street Capital No. 2, headed by eastern suburbs developer and financier Graham Werry, and its investment partner Saddleback Mountain Estates No. 2.
Of those two loans, the Bridge Street Capital facility extended $36 million, with additional fees and charges that totalled more than $15.5 million made up of six months of prepaid interest to the tune of $8.64 million, an establishment fee of $3,696,000, a $2.1 million brokerage fee, and a $1.05 million origination fee. There was a 30 per cent default interest rate.
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The third lender, Saddleback Mountain Estates, offered $20 million as a preferred equity loan, and incurred an upfront fee of between $6 million and $8 million to cover the interest of between four and six months, and default interest of 72 per cent a year.
On the upside, it was only ever meant to be a short-lived debt given Crown had already agreed to an early exit strategy from most of the loans by on-selling a significant portion of the land, the historic Mereworth estate, for $49.7 million to father and son property investors Anthony and Roy Medich.
The Mediches paid cash.
It was a lucrative deal for Crown, and made some sense of the high-interest nature of the loans given that he made a capital gain of more than $16 million during his brief ownership.
It was after that windfall, when Crown had already paid off a substantial part of the loans, that Crown’s second and third lenders on the deal, Werry’s Bridge Street Capital and Saddleback Mountain Estates, launched legal proceedings, suing over the contractual terms of the loan.
Crown countered with a lengthy 250-point claim alleging excessive fees, unconscionable conduct and insufficient time to examine the contracts. All the claims were rejected by Werry.
The legal showdown finally settled earlier this month when Justice Ian Pike ordered, with the parties’ consent, for Crown to pay out his second and third lender to the tune of more than $14 million and on annual interest of 24 per cent. It was a hefty reduction from the almost $50 million that had been sought by Werry.
Werry, who heads up mezzanine finance business Weriton, is a veteran of the property development business and has previously had bad luck in one of his most notable proposals.
In 2010, Weriton Finance was at the forefront of a bid to demolish the Headlands Hotel in Austinmer to make way for a day spa and serviced apartments. But three months after gaining approval for the project from the Land and Environment Court, the hotel’s owner – Thirroul Property Holdings – was placed into receivership.
Crown’s bullish approach to property flipping comes on the back of some success. In 2023, his Manx Park Property trust bought a 125-hectare property at Sutton Forest for $11.54 million and sold it three weeks later for $14.95 million to billionaires Kie Chie Wong and wife Ann Lim.
Peter Crown and Robert Whyte bought horse stud Manx Park at Sutton Forest for $11.54 million and sold it three weeks later for $14.95 million to billionaires Kie Chie Wong and wife Ann Lim.Credit: Domain
It offered a $3.4 million capital gain, and the profit was split between Crown and his billionaire financial backer Robert Whyte, a regular on the AFR rich list since 1994.
But if Manx Park is an example of how well things can work out in the private credit market, then Crown and Whyte’s more recent investment is an example of what can go wrong.
In 2023, corporate entity Macarthur Farm paid $28.6 million (plus $1.6 million in stamp duty) for a former quarry on the Nepean River in Spring Farm, near Camden in Sydney’s south-west.
According to Crown’s evidence in another matter that recently found its way to the Supreme Court, he provided the “cleverness” while Whyte’s Warneet Super Pty Ltd provided the “capital” of more than $30 million.
If it was resold within 12 weeks, any profit would be divided up 50:50, adjusting to 60:40 in Whyte’s favour if sold within a year, and rising to a 75:25 profit split beyond that.
Rich-lister Robert Whyte provided the $30 million capital behind the Macarthur Farm property project.Credit: Dominic Lorrimer
It didn’t sell quickly. What’s more, Macarthur Farm has since been placed into receivership, and the Cor Cordis receivers launched court proceedings last year claiming Crown had misappropriated $2.6 million from a business activity statement refund.
Despite Crown’s claim that the money was paid into his personal account as a performance fee of $1.1 million and a management fee of $1.5 million, Justice Scott Nixon saw things differently.
Earlier this month the Supreme Court judge found against Crown for breach of trust and breach of his director’s duties, and ordered Crown to repay the $2.6 million with interest of $292,400.
But the matter doesn’t end there, with Crown’s lawyers arguing Macarthur Farm should not have been put into receivership, and the orders have been stayed and payment halted as the matter returns to court next week.
Ultimately, the Macarthur Farm property deal won’t be a lucrative one. The 82-hectare site has been subdivided and rezoned for residential housing and environmental protection. Industry sources say it has already secured a buyer – for well in excess of its costs.
Enter the agent
As if Crown’s purchase of the $101 million Berrima property wasn’t complicated enough, the Ray White agency and agent who sold it to him are now suing him for $3.3 million worth of sale commissions.
Kim Watts scored the rural listing of the year when Hume Coal enlisted her to sell its Berrima land aggregation.Credit: Ray White
Kim Watts scored the rural listing of the year when Hume Coal signed her up exclusively to sell the 1300 hectares. It is more than four hours’ commute from her Forbes office, but no doubt worth it given the $60 million marketing price guide.
Watts and the Ray White franchise owner for Central West Group, Tracie Robertson, were enlisted to sell the property on an upfront fee of $30,000. Once sold, that fee would rise to an additional $120,000 plus GST.
On a percentage basis that equates to a commission of 0.15 per cent on a $100 million sale, well below the standard 2.2 per cent on Sydney residential real estate.
However, Watts claims she also issued Crown with a buyer’s agency agreement, charging him a 2.2 per cent commission to act on his behalf on the purchase.
Crown initially offered $86.4 million for the property, but had to raise that to $101 million after he was told that Hume Coal wanted nine figures.
Crown disputes that Watts was his buyer’s agent and therefore doesn’t need to pay her commission. He also argues it would be a breach of the Property and Stock Agents Act if an agent acted for both a buyer and seller at the same time.
Watts and the Central West Group are also suing Crown for the sales commission on the resale of the Mereworth property to the Medich family, amounting to another $1.1 million on the $49 million sale price. Crown also disputes that, saying it was resold by Colliers International and Bowral agency Jacksonwall.
The Bronte house owned by Vanessa Crown was bought for $22.65 million and resold for less than $24 million.Credit: Domain
As both parties await their day in court, Crown’s wife Vanessa Crown has sold her Bronte house across the road from the beach for less than $24 million, which will prove a loss given he bought it for $22.65 million and $1.6 million in stamp duty.
Crown didn’t respond to inquiries, so it remains unknown if he has paid out the $14 million he owes Bridge Street Capital and Saddleback Mountain Estates, but both lenders are among a handful of lenders whose interest remains lodged on title of the Bronte house.
It was due to settle to the buyer, Chemist Warehouse founder Tony Bassaly, last week, but it didn’t.
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