Huge lineup of settlements pending

By Bob Dey

Parnell lawyer Kerry Knight's small firm will play a pivotal role in completing around 1100 property settlements over the next eight months, with a steady stream continuing through to the end of next year.

The big ones causing a spike are the apartments on Princes Wharf and in the Metropolis tower.

At an average of about $300,000 for mostly residential settlements, with some commercial and retail stratas tossed in, law firm Knight Coldicutt will handle some $330 million of settlements between now and next February.

Knight's firm is a key player, having established a niche role which might normally have been regarded as the natural territory of the big law firms.

His father had a respected law firm in Papatoetoe, on the fringe of the farming belt but with a number of South Auckland property developers as clients. When Kerry returned from overseas in 1986, they moved him into a bare office between Parnell and Newmarket to pick up city work.

"I wasn't allowed a secretary, anything, until I could prove myself. It sort of snowballed."

You might call it luck, or the valuing of integrity, but Knight's entry to serious property law work began when he told a friend not to buy a Parnell property which had always had problems.

Tony Gapes, now owner of the Redwood development group which has 83 settlements due in January on its Mt Eden project, was a real estate salesman working for Harcourts when he tried unsuccessfully to get Knight's friend to buy the Parnell site.

"Tony rang me a week later, saying 'I was impressed at the way you handled that, even though you did me out of a commission.'"

So began a word-of-mouth growth in Knight's work. He began working with several developers building terraced houses in the early 90s, among them Gapes, John Williams of Queen City and the partners in CityWise.

"We pushed through a lot of work in those early years and became very experienced, and innovative in structuring deals.

"Normally a solicitor for a purchaser won't handle any money until it's in a trust account or they get a title. We gave them the deal up front, then our developer client built on that piece of land and they made progressive payments. It meant the developers didn't have a financial component hanging out there and they made their margin."

For the Gulf View Towers apartments erected above the Beresford St parking building, buyers paid the deposit up front for air space then progressive payments as the building rose.

"We tried things that gave security to purchasers. It developed from there. When the developers got into bigger projects, they were short of mezzanine funding - the banks were coming up to 60 per cent of cost."

From that difficulty came another solution - Asian migrant equity.

Chong du Cheng, a Vietnamese refugee who came to New Zealand in the 70s and started working on the factory floor at Kiwi Packaging, rose up through the accounting area but wanted to buy a Manurewa drycleaning business, which Knight's father tried to convince him out of.

"He was driving past our Newmarket office, said my father helped him and would I mind if he brought in some clients. They bought everything for cash - Chong told them to buy in Remuera rather than Howick and they bought houses for $500,000 to $600,000 which are $1.5 million homes now.

"They were from the big wave of Taiwanese immigrants who came to New Zealand after the crash. A lot had been ripped off and I sent them to accountants I knew.

"In 1995-96, three of those clients said, 'We have this money.' It was at a time when David Henderson had presales for Highgate, a good product but couldn't get the equity. We brought in the equity with strict controls, the investors got a very good return on it and he got his building funded, and we structured it in a way that the took the risk out."

Previously, investors coming in behind a bank mortgage stood the risk of losing out completely in the event of a default. In Knight's scheme there was a three-way agreement, so in the event of a default by the developer the bank could collect the investors' deposit but the investors could take control of the project. For the developer, the finance cost was reduced because the risk was lower.

"We did half a dozen of these. It upset a lot of lawyers because we were able to get some deals done [in the early 90s, when the property market had all but stopped functioning].

"The prevailing view was, it wasn't lawyers' work. They'd made it hard to run a nominee company efficiently, in a kneejerk reaction to Renshaw Edwards [the Lower Hutt firm where clients lost millions of dollars from fraud], and most of the big law firms gave up running their nominee companies.

"Here we were, some little two-bit firm that's been able to make these deals work. Once people heard about it they started knocking on the door."

Knight says his firm differed from the many lawyers who would look first at legal implications. "With them, you're going to get a beautifully documented agreement, but it's maybe not going to do what you want it to. We started structuring deals to fit in with developers' financing arrangements.

"One of the body corporate companies told us we produced the most land titles right through 1991 to 1995 and I'm confident we still do."

The involvement with Cheng and his Asian clients has changed. Cheng founded Equinox three years ago, a merchant banking business loosely associated with Knight Coldicutt. It now has banking and construction businesses in separate offices in the same building.

Knight's next initiative was to improve the way the firm dealt with resource management matters, employing a town planner, not a town-planning lawyer, to consult to the firm.

"Martin Green got the Princes Wharf resource consent in three months, dealing with the Auckland regional Council, Ports of Auckland and Auckland City Council. If you want to get a new roof on your house it takes three months.

"For a developer it's a one-stop shop. The resource consent is a very important part of the process. Almost all our other developer clients have picked up on that and use him for most of their projects, and it makes us accountable to our clients for more than one thing."

To handle the huge volumes of transactions in many of the Auckland apartment projects - settlements, titles, financial arrangements - Knight turned to a new computer database, replacing huge spread sheets and raising the quality of performance.

The firm could then give banks a settlement schedule with its law firm certificate attached, and give the same schedule to agents during the sales process.

Knight says it is the clients, rather than the firm, which effectively puts together the legal team they want to work with. "We let them roam right through the office. Our whole philosophy has been driven towards giving service to these clients."

Among property market changes, Knight says the firm's Albany work is slowing and fewer apartment buildings are rising. The mezzanine finance market has expanded, but Knight says "we got out of it because everyone else got into it."

After Princes Wharf settlements, buyers of the 370 Metropolis apartments will gain entry from November through to February and firms such as Kitchener Group, Taradale, Redwood and CityWise have a series of completions coming up.