Housing Minister Megan Woods stands by due diligence done before Wolfbrook was given a government underwrite for a Lower Hutt development. Photo / Sylvie Whinray
Housing Minister Megan Woods stands by due diligence done before Wolfbrook was given a government underwrite for a Lower Hutt development. Photo / Sylvie Whinray
Housing Minister Megan Woods is satisfied government officials did their homework before agreeing to backstop a pair of property developers who have previously fallen foul of regulators.
The Ministry of Housing and Urban Development (MHUD) is guaranteeing part of a 14-home development in Lower Hutt being done by Wolfbrook ResidentialNo15 Limited.
Wolfbrook secured the underwrite via MHUD’s Build Ready Development Pathway – a scheme through which the Government is making more than $218 million available to support stalled affordable housing developments.
In Wolfbrook’s case, the Government has agreed to buy some of the houses in its Waiwhetu development, at below the market price, if they don’t sell once built.
The upside for Wolfbrook is that the underwrite is helping it get a loan from a bank, rather than a more costly second-tier lender.
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The benefit from the Government’s perspective is that the support is encouraging the building of affordable houses despite the current housing market downturn.
Nonetheless, Wolfbrook Property Group has just announced it will pay to get naming rights of Wolfbrook Arena in Christchurch.
Wolfbrook founders, directors and shareholders – James Cooney and Steven Brooks – have also fallen foul with regulators in the past.
Wolfbrook Capital Limited was one of several property investment firms that publicly received a formal warning from the Financial Markets Authority in October last year over the way it disclosed information to investors.
The regulator told Wolfbrook it “may have failed to give disclosures to investors as required by Part 3 of the Financial Markets Conduct Act 2013, because it relied on the wholesale investor exclusion in circumstances where it was not entitled to”.
The Financial Markets Authority acknowledged Wolfbrook started a review of its investor onboarding process and launched an audit of its documentation before it received the warning.
Another venture Cooney and Brooks were involved in – the now-failed payday loan business, Moola – also ran into legal trouble.
The Commerce Commission considered that between February 2016 and July 2017 Moola is likely to have charged unreasonable credit and default fees, breaching the Credit Contracts and Consumer Finance Act 2003.
Moola, in March 2021 (once Cooney and Brooks had exited the business) agreed to refund about $2.8m to current and former borrowers, after acknowledging the commission’s view.
Woods said these issues were known facts put to MHUD and a lot of consideration was given to Wolfbrook’s application.
She said there were “bespoke” clauses in its contract that mitigated risks. For example, MHUD needs to see Wolfbrook’s sale and purchase agreements, Wolfbrook can’t enter into complex agreements or engage in equity share agreements, and it must comply with a “no surprises” principle.
Furthermore, the underwrite only kicks in if Wolfbrook can’t sell the homes within a specific timeframe once they’re built. So, there’s no risk the Government is left buying out an incomplete development.
Brooks also found himself making headlines in 2019 for being the mystery person who took out a half-page pro-National Party advert in the Weekend Herald.
Depicting the then departing Air New Zealand chief executive Christopher Luxon morphing into former prime minister John Key, the ad was a play on Dick Frizzell’s Mickey to Tiki Tu Meke.
It was run as Moola was opposing a regulatory crackdown on what payday lenders charge borrowers.
Woods said the political party Brooks chose to support was immaterial, and the fact Wolfbrook was still given support showed how MHUD assessed each application on its merits.
She said developers were critical to addressing the housing crisis, and she wasn’t going to “sit back and let the sector crash” during a downturn, or see investment contained to the least risky parts of the market.
Cooney likewise said MHUD had done a “deep dive” as a part of its due diligence process before agreeing to the underwrite.
“They wouldn’t have given it to us if they thought there were any issues there, or unsavoury type stuff happening,” he said, noting Wolfbrook planned to put bids in for more underwrites in the future.
“We’ve managed to create a good working relationship with them and hopefully there will be a few more.”
While Wolfbrook was one of the recipients of the first tranche of funding put on the table via the Build Ready Pathway, MHUD will on Monday start taking applications for a second tranche that’ll prioritise developments in cyclone-affected parts of the country.
Cooney said he wouldn’t have had the confidence to push ahead with the Lower Hutt development if Wolfbrook had to rely on finance from a more costly second-tier lender.
“In the current environment, funding is pretty hard to secure and ideally you get banking funding (because it’s obviously much more cost-effective than second tier) and that’s really hard to get without presales,” he said.
For Woods, the arrangement is a low-cost way of using the Crown’s large balance sheet to help the private sector build affordable houses at a time interest rates are high, credit conditions are tight, building materials are expensive and economic growth is slow.
She noted the likelihood of the Government losing money was low. Indeed, it hasn’t had to buy any KiwiBuild houses it agreed to underwrite following the programme being “reset” in September 2019.
“The New Zealand building industry has been a boom/bust scenario forever and a day, and I think the Government is trying to soften the blow in that regard,” Cooney said.
“When we downsize, we lose a lot of good staff and good systems and all of our staff trades that we’ve built good relationships with over the years. If we can’t provide them forward-flowing work, then we lose a lot of them and we lose that continuity.
“Then when the market picks up, you’ve got to rebuild it all again. It’s very hard to scale up if you’ve scaled down significantly.
“These sorts of initiatives from the Government allow building companies like ourselves to keep our business at a decent size and keep everybody employed, etc. It means that when things do pick up, we can keep delivering, instead of stop-start, stop-start.”
BusinessNZ chief executive Kirk Hope. Photo / Michael Craig
BusinessNZ chief executive Kirk Hope likened the Build Ready Pathway to a public-private partnership.
He said the Government should have a solid criteria and robust processes to ensure taxpayers’ money isn’t wasted.
Hope noted that when the Government provides a business with an underwrite, the business needs to satisfy both MHUD and its funder before getting its project off the ground.
If the underwrite is triggered, the Government would at least own an asset, which it could use or on-sell.
Hope noted that Labour has always campaigned on being involved in the delivery of affordable housing, meanwhile National is more open to using public-private partnerships for large infrastructure projects.
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