Hotel developer Dan McEwan, of the Auckland-based McEwan Group, was unable to renegotiate a $5 million loan with first mortgage lender South Canterbury Finance and the finance company took out a Property Law Act notice in October, enabling it to take possession of the building late in December.
The nine-storey granite-clad 1930s building - which has now resisted the intentions of five would-be hotel developments since the early 1990s - will be put up for mortgagee sale in February or March to recoup the $5 million loaned by South Canterbury Finance.
Key to any payments being returned to hotel investors owed about $5 million or apartment investors, other than South Canterbury Finance, will be the price paid at mortgagee sale and if it surpasses $5 million.
Mr McEwan told the ODT in mid-November all the 34 apartments in the proposed Hilton had been sold, off the plan.
Mr McEwan was contacted yesterday and said because of the mortgagee sale process it remained "unknown" how the apartment investors would fare getting any return on their investments, and it was "too early to speculate".
South Canterbury Finance chief executive Lachie McLeod was contacted yesterday and said while "there would be no fire sale" of the former chief post office, the apartment investors would be "at the end of the chain" to receive any money back.
He highlighted the project still had plenty of potential as a hotel but it needed a purchaser to get it into an economic unit, as South Canterbury had never intended to be a developer, and it would be marketed extensively in a effort to get the best price.
"South Canterbury do have first dibs as first mortgage holder. It's sad for them [apartment investors] and especially Dunedin in the end," he said.
It was understood, but not confirmed, that many of the southern apartment investors had put in between $50,000 and $150,000 each as 10% deposits and their total invested by could be between $2 million and $3 million.
Since the project's inception, a small group of Dunedin businessmen, who did not want to be identified, had been quietly giving cautionary advice about Mr McEwan's plans.
During the past six months Mr McEwan had in part blamed "negative rumours" circulating in Dunedin about the project for holding up apartment sales and the January start date for construction.
In spite of South Canterbury Finance signalling its intention to sell the building in March, Mr McEwan said yesterday there was still a possibility, because of on-going negotiations, that the project could go ahead, with a new developer outside the McEwan Group or with a joint venture partner purchasing the project.
The price paid for the building has been a sticking point for some investors.
When asked, Mr McEwan said yesterday he had paid "about $7 million".
A year later, after organising contracts, architectural studies and in an appreciating property environment of 10%-15% per annum, he had on-sold the building to the shareholder entity of investors, for the "at valuation" price of $8 million.
Mr McEwan acknowledged South Canterbury as first mortgage holder had first rights to sell the building and recover its loan, above shareholder and investor claims.
However, he said the finance company had "some responsibility" to be "fair and equitable and not disadvantage the second mortgage" holders from seeing some return.
"They [South Canterbury] have a fiduciary duty to other parties' interests," he said.
