Podcast: When crims become dodgy developers

It’s hardly a true crime podcast but this week, inspired by connections made in the press between the relatives of property developers and their friends with police records,  we wade into the murky waters of past cases where the Venn diagrams of criminals and property developers have overlapped.

It should be no surprise to anyone that the high-risk, high rewards ventures like unregulated property development and criminal activities would have attracted similar kinds of characters.

But whatever’s going on nowadays – and we shouldn’t assume that there was anything untoward afoot in the reported cases –  it would pale into insignificance compared to some stories from the fairly recent past.

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Meanwhile, Sue explores the still risky but much safer area of searching for bargains in blocks that are known to have problems.

We also look (with clothes pegs on our noses) at a Qld body corporate who thought their responsibility for a flat being flooded with sewage ended where their insurance cover ran out.

And we get a resolution on the question of whether the representative of one block on a community committee of four can veto agenda items that they don’t like.

All than and more in the Flat Chat Wrap.

If you enjoyed listening to this podcast (or reading the transcript), please share it with your friends using the social media buttons on this page.

TRANSCRIPT IN FULL

Jimmy  00:00

One of the interesting things that came out of the whole David Chandler, Eleni Petinos thing, was that the company that he was asked to go and deal with (who’s building he’d put a stop-work order on)… It came out in a paper, that the brother of one of the directors was thought to be associated with somebody who had a criminal record; they had a picture… and that sent a few people into a tizz. So we’re going to talk about the connection between alleged criminals and alleged developers, in the podcast today. We’re also going to talk about; you did an article about whether it was worth buying into buildings, where you knew there were problems. And we’re going to talk about a body corporate in Queensland that got itself in the poo. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:57

And I’m Sue Williams and I write about property for Domain.

Jimmy  00:59

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

Property developers with criminal connections… Sue, does this surprise you?

Sue  01:20

Well, it’s like going back to the days of the 70s, really, isn’t it?

Jimmy  01:25

I remember, just when we started writing about this stuff, somebody told me a story that they were in a meeting, and there was a building in Victoria Street in Kings Cross, I think, where the notorious underworld character, Lenny McPherson, had been buying up all the apartments in the building, with a view to knocking it down and building apartments. In those days, you had to get 100% approval from the owners, that they would sell the building to whoever. And there was one old bloke who just didn’t want to sell. He said “look, I don’t want to be difficult, but I’ve lived in this apartment since I got married as a young man. I brought up my kids here and my wife lived here with me, before she died. I like to just sit in the corner window and look at the world go by. So you know, if Mr. McPherson wants to buy my apartment, all I ask is that I get an apartment in the same position in the new building. And Macpherson’s lawyer said “okay, this is how it’s going to work. Mr. McPherson is going to let out all the apartments that he owns, to drug dealers and prostitutes and bikies, and young people and backpackers.”

Sue  02:47

That’s horrendous, isn’t it?!

Jimmy  02:48

“Then some days, your water will get turned off, and you’ll call up the building manager, or the strata manager and they might get around to fixing it. And other days, the electricity will suddenly stop and eventually, your life will just not be worth living, so why don’t you just sell?”

Sue  03:05

Wow! And I bet that happened quite a bit.

Jimmy  03:08

I think it did.

Sue  03:09

There was an awful lot of money in it. There was not very much consumer protection, if any.

Jimmy  03:14

And people were scared.

Sue  03:17

Yes. Because there was a lot of money at stake and desperate people and horrible people, doing terrible things.

Jimmy  03:25

And we’re not suggesting for a minute, that anybody connected with Coronation Property…Is that what it’s called?

Sue  03:30

Yes.

Jimmy  03:32

Behaves in any manner like this.

Sue  03:34

Of course not.

Jimmy  03:35

Anyway, just having a brother who has a friend who might or might not have criminal connections, doesn’t mean anything. Another story I recall vividly (and this is quite a funny one, in the way that it started)… The police were doing a raid on an apartment block, somewhere out west. They were doing a raid on an apartment, because there was a drug dealer there. They all went in; charged in and started taking pictures and arresting people and one of the policemen went out onto the balcony, just to look, maybe to have a cigarette or something. They leaned on the balustrade, and it fell away, down five floors, onto the street. So they contacted the council and said “you know, this building is really dangerous.” It turned out that the building had been built by a dodgy developer (obviously). The owners had hired a strata manager to pursue defect claims. The strata manager had been advised over the phone to resign, so that the developer could appoint their own strata manager, who wasn’t going to pursue defects. And after a couple of threats, the strata manager said he had no intention of resigning. And then one night, a couple of people broke into his apartment and broke his knees with baseball bats.

Sue  05:01

Gosh, I remember that, too.

Jimmy  05:03

And then the replacement strata manager (who again was not the preferred choice of the developer); on her first day work, she got a letter with a newspaper cutting about the guy who had had his legs broken. That’s about as nasty as it gets, I think.

Sue  05:22

Yes, absolutely.

Jimmy  05:24

But I do remember when; I think we were at a conference, and we were talking about David Chandler, and the fantastic work that he’s been doing, and this lady (just thinking aloud),  just said “oh, I do hope they don’t kill him.” You think, well, it’s not that ridiculous a suggestion. I have actually (funnily enough, in my new novel, which I’ve just submitted to the publisher)… I talk about a developer, who’s a former criminal, and have made the observation that they have the same basic skill set, as dodgy developers; deception, threats, acting dishonestly. Basically, the difference between most dodgy developers and the criminal fraternity, is that the former tend to use highly-paid lawyers, while the second might be more likely to resort to baseball bats.

Sue  06:27

That doesn’t feel your confidence, does it, really?

Jimmy  06:29

Well, I think we’re in a better place now, but I do know that a well -known local government politician, who ended up in jail (but not for anything to do with his dodgy development deals), actually approached a well-known person from the dark side and asked him for advice. Because he said “I’ve become notorious and I’m going to jail and I don’t have any money.” The advice that he was given was “being rich and not famous is good. Being not rich and famous is bad.”

Sue  07:15

I remember one of the movers and shakers from the Owners Corporation Network, the apartment owners peak body; he was told in no uncertain terms by a developer once, that if he carried on doing the kind of work he was doing, he might very well end up at the bottom of the harbour. And it kind of really rattled this person, but he carried on, all credit to him, really.

Jimmy  07:40

I remember that story, because that developer was quite well known and still operating, and as far as we know, has not actually disappeared anyone into the harbour.

Sue  07:50

Let’s hope not.

Jimmy  07:52

Look, it’s exciting for journalists and observers to think that there are dodgy dealings going on everywhere. But, you know, developing apartments is a less risky way of making money, than selling drugs.

Sue  08:10

Yes and more respectable.

Jimmy  08:13

 And I think eventually, most people in the criminal fraternity, either end up in jail, or dead, or thinking “I have acquired all these skills; why don’t I use them in a way that’s legitimate?”

Sue  08:29

Right, but that of course, is not…

Jimmy  08:31

That is not saying anything about the people that have been mentioned recently in the press, because, you know, they could be absolutely straight as dies. They may even have made a mistake in the past; that doesn’t mean to say that they’re acting in criminal ways at present. When we come back Sue, you’re going to tell us about buying an apartment in a building that you know has problems, That’s after this.

[MUSIC]

Jimmy

So, would anyone in their right mind, buy an apartment in a building, which they knew had problems?

Sue  09:12

Yes, because I think we often look at buildings with problems, and many people in those buildings are quite keen to sell. And they’re quite keen to sell at quite low price, as well. And you look at them, and you think ‘well, are those buildings lemons, or is this a good opportunity to make lemonade?’  I talked to a few experts and asked them if they would ever consider buying an apartment in a trouble building, and they said “well, yes.” I mean, under certain circumstances, they would, and people could get a bargain, in certain circumstances, as well. I suppose it depends mostly, on what kind of issues a building is facing, and whether they’re fixable, and how much money that’s likely to cost. Maybe, there’s a council order, or a government likely to come in and deem it unlivable, which is it huge problem. But then, you have to look at other things as well. I mean, what is the owners corporation doing about it, and it might be in a really good financial position, and it may have budgeted to fix those problems. In which case, it’s just business as usual, in many cases. A building sometimes doesn’t look very good, because it might have cracked rendering and that might be just a surface problem; it’s just superficial, it’s not a huge problem. Or it might be disguising more significant cracking underneath, but you need to look at the building; it will have its own reports on its issues. It might even be worth getting your own independent report, somebody suggested.  So what about these buildings that have had problems for years, and the majority of owners have decided ‘the best thing we can do is just get out of here, and not tell anybody and let the next people who move in, deal with the problem?’ Well, you’d be very, very careful to read their minutes, and you’d read between the lines in the minutes, to see if there’s a problem that they’re just not addressing. Because you’d be able to see from orders made on the building, you’d be able to see the kind of action the building has taken, or not taken, and decide then whether it’s a good financial certainty or whether it’s far too risky to ever bother with. But you know, one of these people said to me, that there’s a huge stigma about apartments. You know, some people will be happy to buy an old rundown house and completely renovate it and make money on it. But when it’s an apartment, they’re suddenly really nervous about it. I mean, it’s basically just an issue of multiplication. It’s just a question of it involving more people, so it can be a little bit more complex to negotiate. In fact, if you look at the money you’d be spending as an investment, in the value of that apartment and the amount of money you’re likely to get out at the other end, or a fabulous apartment to live in, or a fabulous apartment to sell, later on… You know, maybe it might be a worthwhile investment, in the same way that putting a lot of money in a house might be a worthwhile investment.

Jimmy  12:13

Also, you do have developers and investors going around, looking at buildings like that, and thinking ‘well, we could do a buyout here and do a rebuild.’

Sue  12:25

Well, that’s true, too.

Jimmy  12:27

And if you’ve got that kind of mentality, if you see a building that’s in trouble, and you can buy into it cheaply, you might be able to sell it a considerable profit.

Sue  12:39

That’s right. And I guess that would depend mostly on how big the building is, as well. You know, if you’re talking about a high-density building, a tall building, a big building, that might be a bit more complex, than a small four apartment 60’s block, which may be a lot easier to talk to people and negotiate your sale with. So yes, it’s very much on a case-by-case basis, but the message was very much, don’t just dismiss it out-of-hand; look a bit more closely at the possibilities and the opportunities and see if it will be worth the challenges, really.

Jimmy  13:14

So if you own an apartment in a building like that, is it worth getting an engineer’s report for the whole building; getting your owners corporation to get a proper engineers report, so that everybody in the apartment building can say “look, this is what needs to be done. This is how much it’s going to cost?” I mean, from the point of view of selling, it surely must be better to say “this is being transparent, entirely. This is what it will cost you, if you buy in here,” rather than sneaking around hoping that…

Sue  13:45

Oh, yes. Because people just get really suspicious, if people are trying to hide things. And they might even imagine that the problems are much worse than they actually are. So I think transparency is really important and a good engineers report, would be invaluable. If somebody’s thinking of buying into a troubled building; into a crumbling building, they might think ‘I’m not sure I want to trust their report.’ But it’s possible to get other independent engineers reports, for about $1,000. I mean, that’s not very much money, if you’re thinking of investing hundreds of thousands of dollars into an apartment.

Jimmy  14:19

I remember when I used to do the James Valentine afternoon show, before he moved to mornings… Somebody called up once and said they were up in the Northern Beaches and there was an apartment for sale and the vendor said that they would give him a 20% discount, if they didn’t inspect the building.

Sue  14:43

It’s like the lottery, isn’t it, really?

Jimmy  14:44

James and I said “run away, as fast as you possibly can. There is no way you would even want to do that, you know. Because, what is it that they don’t want you to see?” This young bloke was saying “yeah, but look, it would be such a bargain.”

Sue  15:03

If it looks too good to be true, then it probably isn’t true.

Jimmy  15:06

That’s dead right. And I think sometimes, a lot of committees don’t do anything, because they’re not quite sure what to do. They might have a strata manager who’s not particularly proactive, and is not advising them and they don’t realise that it’s not just a question of raising special levies to get the work done. They could get a strata loan, they could raise levies and have a strata loan. They could have both at the same time. They don’t realise there are lots and lots of options. And I think sometimes, especially if it’s an older building, with older residents who’ve been there a long time, they just may not realise that they have different avenues they can pursue.  Yes, absolutely. The other thing that people don’t realise when they’re buying into apartment blocks is; you know, you touched on it earlier… You said that you could have a problem there with all the other people in the apartment block, not wanting to fix the defects. They don’t have a choice. The law says you’ve got to maintain and repair. So you could come in with a building that has a moribund committee, who are not prepared to do anything (because they don’t want to pay any more money than they already have), and basically just say “look, the law says you’ve got to do this… I’m prepared to pay my share.” It’s not going to make you the most popular person in the building, but it actually will improve the building stock in a small way, because that building will get fixed up. You will be able to get a return on your investment and once it’s fixed, then everybody will know that this building is now sound, and it’s going to be standing around for the next few years. When we come back, we are going to look at a couple of stories. One about a body corporate in Queensland, that has (literally) got itself in the poo. And we’re going to give you an update on that story about the community scheme, where the secretary managed to veto the motion to their committee, that was going to remove him as secretary.

[MUSIC]

Jimmy

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[MUSIC]

Jimmy

On the website this week, I’m running a story from the Unit Owners Association of Queensland. There was a building up there… I mean, this is a pretty yucky story, so if you’re eating, stop listening! There was an apartment where the block had a blockage in a sewage drain pipe and these people were away on holiday and they came back and found that their apartment was flooded with raw sewage.

Sue  18:12

Oh, no!

Jimmy  18:13

So obviously, apart from being horrible, it’s a big expense. It’s cleaning, it’s repairing, it’s removing, and they contacted their home and contents insurers and they paid up, so much. The strata insurers paid up a certain amount. The owners corporation never challenged the facts of the case. They said “look, yes, this is a common property pipe. It was not being properly maintained… It’s our fault.” But, they said “we are only liable for as much as our strata insurance covers.”

Sue  18:54

Wow, they can’t say that, can they?

Jimmy  18:56

Apparently not, because the owners, realising that they were going to have to pick up the balance of the costs, took them to a tribunal. And there is a section of the Body Corporate and Community Management Act; I think it’s section 231.

Sue  19:18

We’ll take your word for it. Jimmy!

Jimmy  19:20

It’s on the website, anyway. And that means that first of all, you can take your owner’s corporation for compensation, when they are at fault. There’s a limit; I think it’s $75,000 for the actual damage and $10,000 for the costs associated with taking the case. They pursued that at the tribunal and the tribunal said “well, first of all, let’s get rid of this idea that you’re only liable for what you’re covered for. That’s got nothing to do with your liability.” Your liability is absolute, under the law. The owners corporation has to maintain and repair common property. So they knocked that aside, and then basically, the owner got all their money back.

Sue  20:09

Wow. Well, that makes perfect sense, doesn’t it, because otherwise, you could under-insure lots of things and then just pay out what the insurance gives you.

Jimmy  20:17

It’s very common these days, for strata schemes to have an excess on their insurance policies, so that it’s only claims over a certain amount. If they’re going to say ‘well, we are only covered for X amount,’ they’re obviously going to fall short. Basically, it’s a myth, and it’s a very common myth in strata, that the owners corporation only has to pay what they can get back from insurers.

Sue  20:42

Great. So it’s good to be able to see that in black and white and know that that’s not the case. Absolutely.

Jimmy  20:46

Absolutely. The other story we were looking at was the one about the community title It’s four different schemes, one of which has 45% of all the unit entitlements, in the entire community title.

Sue  21:01

So they’re more powerful than anybody else?

Jimmy  21:03

Yes, and each block in the scheme, has a representative on the Community Association. The other three members wanted to get rid of the force one as Secretary; not remove them from the committee, they just didn’t want him or her to be Secretary anymore. So they put a motion up to their next committee meeting and there is a thing in strata law, that if more than 1/3 of owners don’t want something to be discussed at a committee, they can petition the Secretary or the Chair and say “take this off the agenda.” So this secretary, who was being led towards the exit door, said “hey, I’ve got 45% of the votes here, so I am vetoing this motion to have me removed.” Now, we discussed this a couple of weeks ago, and we both decided that surely, this must be wrong. So we asked our friends at Bannermans Lawyers what they thought, and they came back and said basically, the guy who represents that building, represents the owners. Even though they hadn’t taken a vote, even though they hadn’t polled the owners in the building, they were effectively 45% ownership, in that committee. And yes, they could veto.

Sue  22:23

So he was right?

Jimmy  22:24

 He was right.

Sue  22:25

Oh, my gosh!

Jimmy  22:26

And the person who contacted us has said as a result of this, they are now no longer having committee meetings. Their meetings from now on, will all be minuted or agenda’d as extraordinary general meetings, and that veto doesn’t apply then.

Sue  22:46

That’s clever!

Jimmy  22:49

So yes, I was thinking we might have to change the law and somebody wrote to me and said “why would you change the law, just because it doesn’t work the way you think it should?” And I said “because sometimes, you just have to do that, when you discover these things.” Like years ago, through our forum, we discovered that developers were selling apartments on the condition that people gave them their proxy votes. And when we exposed that, in the Sydney Morning Herald (did a big two-page expose), they changed the law. They change the law here and they change the law in Victoria, as well. At the time, the Planning Minister was Frank Sartor and he said they were changing the law because of community complaints and stories in the press. I thought about it and thought ‘well, nobody else was writing about this.’ So that was me; we did that!

Sue  23:48

Troublemaker, again!

Jimmy  23:49

I think it is valid, when you see a law that is being misused (as this one I think was), then it is valid to say “well, can we change this, the next time you’re having a look at the laws?”

Sue  24:00

Absolutely.

Jimmy  24:02

And on that note, thank you very much, Sue, for giving up part of your valuable Sunday evening. I know you’ve got lots of work to do at the moment.

Sue  24:10

No worries.

Jimmy  24:11

And thank you all for listening. We’ll talk to you again soon. Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website, flatchat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favourite pod catcher. Just search for Flat Chat Wrap with a w, click on subscribe, and you’ll get this podcast every week, without even trying. Thanks again. Talk to you again next week.