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Monday Aug 12, 2013

Property investors want R50m Blaauwberg hotel sale set aside

More than 800 investors of embattled property development company Realcor, 50 financial advisers and two investment brokers have approached the Western Cape High Court to set aside the sale of an unfinished building in Blaauwberg.

The building was meant to be a five- star Radisson Blu hotel.

They say the partially finished hotel was sold for R50 million at a public auction in May, way below the at least R560m if could have gone for.

It is their argument that the trustees of the liquidated owner company should have spent more time looking for a buyer.

The unfinished 144- room hotel, with picture- postcard views of Table Mountain and Table Bay, is the main asset of Midnight Storm Investments 386 (MSI), one of the companies in the Realcor Group.

The hotel was funded through the sale of debentures, class A shares and class B shares, which paid a return of 15 percent initially but dropped to 12 percent.

Realcor attracted about R615m from about 3 000 investors, many of them pensioners, and about half previously disadvantaged investors from across the country.

But plans for the scheduled December 2010 opening went awry because MSI could no longer procure new investments after Michael Blackbeard, deputy registrar of the SA Reserve Bank, announced that the Reserve Bank had taken action against Realcor.

Soon afterwards, the Realcor Group began to crumble as its bankers refused to extend its credit and its cash crunch escalated. Realcor has since been provisionally liquidated, and MSI was finally liquidated in August last year.

Liquidators Stephen Gore and Kevin Kiewits were appointed to take control of MSI's affairs, and consequently ordered the proposed auction of its main asset - the Blaauwberg hotel.

But independent investment brokers Willem Hendrik van Zyl and Deon Pienaar lodged an 11th-hour application in the high court to stop the auctions from going ahead, pending an application aimed at recognising investors as creditors of MSI.

However, the brokers' efforts were in vain and on May 23 the hotel was sold for R50m.

Now the brokers, 50 financial advisers who referred clients to the project, and 837 investors have gone to the high court, this time to have the R50m sale set aside.

In an affidavit before the court, Van Zyl said the hotel is worth about R574m on completion, and that the R50m for which it was sold was too low.

'I am also advised that the trustee has a fiduciary duty to represent the interests of those affected by the liquidation, and that it cannot do so if it sells the assets for a fraction of their worth,' he said.

Van Zyl described the sale as 'arbitrary and capricious, and not according to the rule of law', adding that the prejudice that the investors stood to suffer was 'astronomical'.

The applicants asked the court to set aside the sale and order the trustees to put the property back on the market for at least a year, or until an offer for at least R560m was received and accepted.

In addition, they want the court to order the trustees to, should the property not sell for that price after a year, reduce it by 5 percent a month.

In addition, they want the proceeds of the sale to be distributed to investors.

The application is expected to go to court next month.

Weekend Argus
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