The future of Sorrento’s landmark Continental Hotel has again been plunged into uncertainty after $108 million in assets of its new developer, who purchased the prominent pub several months ago, were frozen by the courts.
Developer Demetrios Charisiou’s LBA Capital was revealed this week by The Age as the mystery buyer who signed a $21 million contract to take over the heritage-listed hotel, a deal that now looks likely to fall over.
In another body blow to the Continental’s owner, hotelier Julian Gerner, the Supreme Court has moved to freeze LBA Capital’s cash and real estate assets after its South Korean-based financiers alleged the developer breached its loan obligations.
Heavyweight South Korean lenders KB Securities and JB Asset Management gave almost $400 million to LBA Capital to invest in government-subsidised National Disability Insurance Scheme (NDIS) housing for disabled people.
The funding was meant to be used to buy homes, remodel them and lease them under the NDIS system to gain Australian government subsidies, the firms said.
Instead, the funds raised from South Korean institutional and private investors were allegedly diverted by LBA Capital into buying land – not homes – as the local real estate market overheated during the last housing boom.
It is unclear how substantial LBA’s involvement with NDIS was. The NDIS was contacted for comment.
KB Securities said in a statement it had clawed back $247 million from LBA, gained a freezing order over a further $108 million, and would go after LBA’s three registered executives for the remaining $40 million.
“We will recover up to 89 per cent of our investment,” the South Korean firms claimed.
The Continental’s redevelopment has proved a major headache for Mr Gerner, a well-known Melbourne hotelier.
The unexpected collapse of his joint partner in the project, another over-stretched developer Steller, prompted Mr Gerner to sell the Italianate-style hotel midway through its $80 million redevelopment.
“This is just another speed hump for me. It’s been a bumpy ride for sure. I was aware there were issues [with LBA] and I have been trying to move heaven and earth to find an alternate solution,” Mr Gerner told The Age.
The Continental transaction was due to settle next month.
Mr Gerner would not comment on what he intended to do with the Continental or if he would seek to continue the redevelopment himself. He purchased the popular seaside pub, reportedly the largest limestone structure in the southern hemisphere, in 2015 from the Di Pietro family.
Work on its redevelopment ground to a halt in May as Steller’s difficulties began to bite.
Tighter construction financing conditions and a slump in the apartment market have put the squeeze on Australia’s developers.
Receivers McGrathNicol this week quietly put seven of Steller’s Victorian development sites on the market in an attempt to clean up the developer’s books and recoup funds from assets.
The sites have an estimated end value of $80 million and are controlled by Asia-based financier OCP which appointed McGrathNicol as receiver over 13 Steller subsidiaries in July. Other financiers, Sydney-based Atlas Advisors and the Bendigo Bank, are also owed money by Steller.
KB Securities and JB Asset Management took legal action against LBA Capital through global commercial law firm Allens.
LBA Capital has not answered calls at its South Melbourne office for the past two weeks.
Keep up with Commercial Real Estate news.