By Hedley Thomas and Michael McKenna From: The Australian
ROD Lambert shows visitors the spectacular ocean views from the opulent rooftop terrace of his villa - one of Australia's most exclusive beachfront addresses, Albatross Avenue at Mermaid Beach on the Gold Coast - as he contemplates the prospect of financial ruin and the loss of the family's dream home.
An auction of the property tomorrow - the marketing spiel says it "must be sold under instructions from the bank" - will probably seal the experienced real estate agent's fate.
A sale will confirm the extent of his losses on a property of old flats that he bought for a cool $10.5 million at the height of the boom in early 2008, then spent millions more redeveloping into a pair of villas. Since Lambert purchased the property - in an enclave that Ray White Group's chairman Brian White describes as a "honey pot and the most talked-about residential real estate in Australia" - the global financial crisis struck. And as stockmarkets and property values plunged, owners of the beachfront along Albatross Avenue and Hedges Avenue moved to liquidate. This premium stretch of the glitter strip has sprouted "for sale" signs for mortgagees in possession in the months since.
For buyers such as Bruce Mathieson, the downturn has been a blessing - the pubs and pokies giant spent $18m on a heavily discounted Albatross Avenue house. But for sellers such as skate-wear mogul Stephen Hill, who had spent about $28m in total on the beach block and the house before accepting Mathieson's offer of $18m, the fluctuating values added up to a financial haircut. Mathieson, who swears by the area, told The Weekend Australian yesterday: "You make your money in doom, not boom. I think there's wonderful value here at the moment. But will it last? Or go further down in price? Who knows?"
As the boom on Hedges and Albatross gathered momentum in the years leading up to 2008, frenzied interest in the strip's money-making potential coincided with a rash of highly publicised, and extraordinary, price rises. Shacks on the beach appeared to appreciate by millions of dollars in months and even weeks. Entrepreneurs and corporate chiefs including tourism operator Tony Smith, fallen IT guru Daniel Tzvetkoff, and Hill and Mathieson were attracted to a strip with a record of capital appreciation that has confounded some property observers.
Ray White Group's most successful selling agent, Mermaid Beach specialist Michael Kollosche, had a windfall of more than $3m, excluding his costs, after buying a beachfront property and selling it eight months later in mid-2008 for $10m, but Tzvetkoff, who was forced to sell during the global financial crisis, lost as much as $20m after building on a massive amalgamated block. The spectacular price growth at Mermaid Beach began a decade ago when Harry Kakavas, now a self-confessed gambling addict who unsuccessfully sued Crown Casino, embarked on a high-profile campaign to promote and sell the strip to the rich and famous. But with the beachfront boom over and prices down by as much as 50 per cent, Lambert and others smell a rat. What if some of the sale prices achieved during the boom were bogus, having been ratcheted up artificially by a handful of sophisticated investors using an elaborate scheme involving "put and call options"?
What if the official sale contracts and registry data contained fictitious information about the prices actually received, resulting in valuers being misled about the worth of other properties?
This, according to Lambert, is what occurred. The Weekend Australian has confirmed that side agreements including put and call options were used as part of an orchestrated strategy to distort the prices and values of some beachfront properties fetching more than $5m on the strip.
The put and call options contrived to depict a sales price of several million dollars more than was actually achieved. Since he discovered an elaborate scam preceding his purchase of 107 Albatross Ave, Lambert has been scrutinising his and other beachfront transactions, flying witnesses to Brisbane, obtaining statutory declarations, briefing lawyers and private detectives, and lobbying politicians and police. Queensland Minister for Fair Trading Peter Lawlor, a solicitor from the Gold Coast, tells The Weekend Australian that he has reviewed the documentary material and has come to the conclusion that "it stinks to high heaven" and is a matter for police. Lawlor says: "There's a fictitious component in the transactions. It makes you wonder what went on with all of those [Mermaid Beach beachfront] properties.
"The values in that area went crazy over a short period of time. There was almost a stockmarket-like frenzy about it as people were getting in and out and making a couple of million dollars at a time the agents were also receiving very big commissions.
"For the [owners] there now, they really don't know that they may have been touched for a couple of million dollars."
Lambert's mission now is to publicly expose what he believes was a pattern of deliberate conduct to dupe buyers, banks and finance companies into believing there really were price miracles occurring at Mermaid Beach. He describes his decision to go public now as "the right thing to do, but financial suicide" because of the effect his disclosures may have on the resale price at auction tomorrow.
"Like other owners of properties that have been the subject of these practices, I have lost a lot of money in what has been an elaborate price-fix," Lambert says. "These transactions have created a market that has lost its base, reality and truth. The transaction history of those very expensive properties on the beachfront needs to be thoroughly investigated by the authorities to uncover exactly how many times it has occurred. "Who can say what any premium beachfront property along the affected stretch of the Gold Coast is truly worth after the past five years?
"I know that I am going to take a big financial hit, but I want this exposed because it is bigger than just my property." Brian White, chairman of Ray White, says he welcomes any investigation by police, adding that Lambert, whom he describes as a former "key player in real estate and development on the Gold Coast and a fantastic real estate agent himself", has behaved appallingly and threatens to ruin reputations. Lambert denies this.
The head of Ray White Broadbeach, Gary Gannon, describes Lambert as "a guy going bankrupt who wants to blame everyone else" for having bought at the top of the market. "He has tried to extort money from me, Michael Kollosche and Ray White Group, and now he is trying to destroy the beachfront," Gannon says. "We agree there was something questionable about an aspect of the transaction with his property, but we had nothing to do with it.
"We are clean, we have never done anything wrong, and he's building a fabricated case because he's lost his inheritance. We reject his claim there were many other transactions involving put and call options."
Put and call options are lawfully used to ensure that a transaction occurs by a certain date; however, The Weekend Australian has confirmed they were used at Mermaid Beach to inflate prices and misrepresent values.
Sebastian Muscolino, a Brisbane-based property consultant who describes himself as an unwitting participant in the scheme, has sworn a statutory declaration in which he outlines how a put and call option was used to purport that the selling price of Lambert's beachfront property, just months before Lambert bought it, was $10.59m when the amount of money handed over to the vendor was less than $8m. A formal sale contract, showing a price of $10.59m, was used to obtain a written valuation for the same amount, then used to obtain almost $8m in finance. Stamp duty was paid on the bogus price of $10.59m. The bogus price was entered on the official sales register and relied on by valuers, prospective purchasers and the next buyer, Lambert, as the true market price.
Muscolino said that at the time he was working for a businessman, Mr A, who had moved from Melbourne to the Gold Coast to develop property. The put and call transaction effectively allowed Mr A to pocket more than $2.5m in profit without putting any of his own money in the deal.
For legal reasons, The Weekend Australian cannot name Mr A, who is now bankrupt with debts to Westpac Bank of more than $9m. He has not returned the newspaper's calls. His solicitor said yesterday the businessman strenuously denied any wrong doing. "But he does not want to make a comment," solicitor Evan Cooper said.
An earlier beachfront transaction involving Mr A and a put and call deed saw a property being purportedly sold for $8.5m when in truth it reaped $5m for the vendor. The amount lent to Mr A for the purchase was $6.8m because Westpac was led to believe the sale price was $8.5m. The property was sold by Westpac as mortgagee in possession in late 2008 for $3.5m. Westpac was oblivious. A Westpac spokeswoman, who confirmed Mr A was bankrupted by the bank, said lenders relied on the honesty of customers. She could not comment on individual transactions.
Property experts disagree over the scale of the scheme.
Ray White Broadbeach and its top agent, Kollosche, insist there were only a couple of isolated incidents. But other agents and valuers with a long record of experience believe the use of put and call options help to explain explosive price growth of properties on Hedges and Albatross avenues.
A respected Gold Coast agent with knowledge of the practices on the beachfront says other transactions were manipulated by people other than Mr A. "This part of the strip became a playground for a number of individuals who used the put-and-calls, swaps and trades to jack up the prices," he says. "It was like pass-the-parcel with some of the properties but it is only now that Rod Lambert has come along to rock the boat.
"A major investigation would have to look at all the contracts and the side agreements to determine the extent of the fraud and work out how much money actually changed hands, compared with what the public register falsely claims was the selling price." But Mathieson reckons that a transaction history showing the sale prices of any property is "irrelevant". "I think it is a disgrace that people like Rod Lambert, who have been burned, are now complaining," he says. "Lambert has been a real estate agent and a developer. Nobody forces you to buy anything. If you worry about what other people are paying, you're a lunatic."
Source: Money Morning
