Podcast: Toplace crash leaves Vicinity in limbo

There’s only one story in strata this week – Toplace, the developer of the benighted Vicinity building, went into receivership, leaving owners with an estimated bill of between $50m and $100m to rescue their sagging high-rise.

Sue and to a lesser extent the Flat Chat website has been following this saga from day one. And it has a lot of moving parts, reading more like a true crime story that a property yarn.

There are disgraced politicians, anonymous death threats, absconding directors, fist fights at strata meetings, conspiracy theories (and genuine conspiracies), misinformed overseas and absent investors and heartbroken resident families.

And there, right in the midst of it all, NSW Building Commissioner David Chandler holds the line, refusing to be seduced, deterred or intimidated in his relentless pursuit of quality building practices in the apartment industry.

This week’s Flat Chat Wrap lifts the lid on all that and, sounding more like a true crime podcast than a chat about apartments, follows the timeline from high-rise dream to low-rent disaster.  

TRANSCRIPT UNDER CONSTRUCTION

Jimmy  00:00

Well, there’s one piece of big news in strata this week Sue Williams, and that is a story that you wrote a lot about in the paper the other day, about the Vicinity building in Canterbury.

Sue  00:11

Yes, a really sad story.

Jimmy  00:13

Absolutely. It’s a big story; it goes back quite a while. It’s got just about everything; a sacked MP, people on the run… Allegations of all sorts of things. It’s got major defect problems; it’s got a lot. We’re going to break it down into three parts. We’re going to look at the history, we’re going to look at what’s happening now and we’re going to look at the future for that building and other buildings in New South Wales. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:43

And I’m Sue Williams and I write about property for Domain.

Jimmy  00:46

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

Okay, Vicinity in Canterbury; what’s happened in the past?

Sue  01:06

Well, it was a complex that was built about six years ago, by the developers who have become a bit notorious now, Toplace. At the time, everybody thought “oh, I think they’re probably okay.” It is quite a bit complex; three different buildings, 279 apartments in Canterbury in southwest Sydney. People started moving in and then the complaints started. When the owners got in, it looked like a really good building. Lots of them, when they bought off-the-plan, did all their due diligence, and the building looked fine. And then they noticed cracking, some crumbling, and lots of little issues, that they were starting to worry about. So they brought in a structural engineer to examine the whole building, and discovered that it really wasn’t propped up properly. There were some extra storeys that were put on top of the building; nobody quite knows how they were agreed to. They suddenly appeared; I think it was meant to be maybe, 10 storeys and it became 12, or something like that. And the engineer said that there was too much weight for the building itself. And the engineer actually said that it was a really dangerous building and there were real problems, so they called in David Chandler. The difficulty with Vicinity is they have a lot of overseas investors who don’t live there, obviously, and they just want to make capital growth and an income from the tenants. They really didn’t want to talk about any possible problems with the building. I mean, you know, they’re overseas, they didn’t really understand the issues and probably, most people outside Australia wouldn’t think that Australia would have a construction industry as bad in some parts, as we do have. So those owners were saying “no, no, we don’t think there are any problems. This is just being made up by a very noisy minority.” So there became conflict in the building immediately. They wanted to ignore the structural engineers’ report and wanted to sweep any possible problems under the carpet, while at the same time, denying there was anything wrong. It created huge conflict between the owners corporation and at one point, somebody called a meeting of the owners corporation in the car park, and the police had to come and break up the fighting that ensued. It got really, really nasty. And then David Chandler came in, had a look at the building with his structural engineers and said yes, there were huge problems. And he came up with quite a novel solution, because I think in the past, say with Mascot Towers…

Jimmy  03:31

And Opal.

Sue  03:32

Yes. They evacuated immediately; they just got people out. And we know how disastrous that was for so many other buildings, like Mascot Towers. He brought in some people, and they got engineers, and they propped up the building to make it safe temporarily for people to carry on living there. And for him, that was a really novel solution and something that he worked on for a long time, to make sure that they could do that kind of stuff, without people having to leave their homes and maybe never go back. So the problem is, that it’s been propped up now for… I don’t know; it’s a probably about a year-and-a-half, or maybe a bit more. And nothing really much has happened.

Jimmy  04:13

Now these are not ordinary, what they call ‘acroprops,’ I think they’re called. They just look like scaffolding, where you grow them up and they hold up a bit. These are big, big things.

Sue  04:25

Oh, they’re huge.

Jimmy  04:25

They are about the size of a telephone box (if anyone can remember what a telephone box looks like). So there’s big hydraulic rams almost, to hold up the bits of the building. And apparently, they’re not just in the basement area; there’s a couple of them actually inside apartments.

Sue  04:43

That’s right. So the tenants of those apartments had to be evicted. Those families had to be evicted, in order for the propping to go up in their apartment. It was kind of heartbreaking for a lot of residents, anyway. I mean, the residents actually had to pay for the propping. It was a lot of money; maybe $150,000 and Toplace, the developer, didn’t want to pay for it.

Jimmy  05:09

Because they kept saying there wasn’t any problem.

Sue  05:10

Yes, that’s right; that’s what they insisted at first. They produced structural engineers to say that the building was absolutely fine. It’s really hard when you’ve got duelling structural engineers. I mean, those structural engineers are being paid by the developer. It’s not perhaps, in their financial interests to go against…

Jimmy  05:32

What the developer wants.

Sue  05:32

It became a real fight, right from the very beginning. The two sides have most recently been in court together, because the Department of Fair Trading obviously is involved (via the Building Commissioner’s office), and they’ve taken Toplace to the Land and Environment Court, to insist that they… There’s a number of building rectification orders against Toplace, to demand that those take place, because nothing has been done. You know, the building’s still standing there with all these props in and all these people still worrying that the building’s going to fall down. I talked to one guy who said every time he comes home from work, he’s terrified that he will come home and the building will have collapsed and every night, he goes to bed, and he has nightmares about waking up in a pile of rubble. And you kind of think, oh, my god, living under that stress and strain; absolutely awful.

Jimmy  05:48

And also, there’s the stress of the current estimates for fixing it, which are $50 million.

Sue  06:36

$50 million-to-$100 million;  they’ve been given lots of different prices, but that’s a huge amount.

Jimmy  06:42

So somewhere around about this time last year, this whole saga took a kind of curious twist, when David Chandler was encouraged by the then Fair Trading Minister, Eleni Petinos, to have a meeting with the Toplace director; do you recall that?

Sue  07:02

Yes, Jean Nassif.

Jimmy  07:04

And he promptly (David Chandler), resigned.

Sue  07:10

I think Eleni Petinos was saying look, this is a really good development company and this is a really good guy, who is the founder and the owner of this and it’s really not fair that you’re targeting him. David stood his ground and then basically, when he realised that the Fair Trading Minister (and therefore the department wouldn’t back him up), he said ‘I’m out of here. You know, it’s ridiculous… If you’re telling me to try and reform the building and construction industry in New South Wales for the better, and you’re not going to back me up on things like this, then it’s an impossible task.’

Jimmy  07:44

And then at that time, the then Premier, Dominic Perrottet, was on his way back from I think, Indonesia or somewhere and basically called Eleni Petinos into his office and told her to clear her desk. This is where it all gets a little bit seedy; he said it was because of allegations of bullying and had nothing to do with the Toplace scandal.

Sue  08:08

That’s right.

Jimmy  08:09

That sounds like a whole bunch of BS to me.

Sue  08:13

Well, because at the same time, they obviously persuaded David Chandler to come back. So he rescinded his resignation, and then came back triumphant, and continued his actions against Toplace, to try and make sure their buildings were safe, because they do have another few buildings, which have question marks about them, as well. They’re the subject of building rectification orders, as well.

Jimmy  08:38

So the meeting with Toplace… I don’t know if it ever took place. I think he kind of went along as a courtesy, but basically, in his mind, David Chandler was ready to pull the plug. John Minns, the Property Services Commissioner… I think he announced that he would not be renewing his contract, but he came back again, as well. Looking back (it’s been confirmed), it was like everything was at fall-back to the way it used to be, with politicians doing developer’s bidding and apartment owners picking up the tab for it.

Sue  09:24

That’s horrendous. You are quite right; it was a moment in history, wasn’t it? And thank goodness that the Liberals saw the light and thought we really need to make sure our industry in New South Wales is good enough that it keeps people’s confidence up.

Jimmy  09:41

We tend to forget that at that time, we had people in the Liberal government like Matt Kean and Victor Dominello, who both had been Fair Trading Ministers and they’re both pretty decent people. I’m sure that they were having a quiet word in Premier Perrottet’s ear and saying there’s something very wrong going on. I mean, there’s another whole other issue with Matt Kean and Eleni Petinos, that we probably don’t need to go into here…

Sue  10:13

We’ve got a housing crisis now; we had a housing crisis back then. And if people lost complete confidence in new apartments, how much worse would the housing crisis be? Nobody would be buying apartments off-the-plan, because they would have no guarantees that they were a decent standard at all. And I mean, this kind of thing with Vicinity really shakes people’s confidence. But at least we know that for the future, the Building Commissioner is going in, looking at buildings, making sure they’re safe, and if they’re not, he’s issuing orders to make sure that the workers improve their work.

Jimmy  10:50

As he said in our podcast the other week, the current Fair Trading Minister, Minister Chanthivong  has said that he doesn’t want quality to be sacrificed in the interest of quantity, and that’s something, moving forward. Okay, we’re going to take a quick break and when we come back, we’re going to talk about what has happened in the past couple of weeks. That’s after this…

[MUSIC]

Jimmy

So shortly after the Eleni Petinos incident, things started to go a bit awry, if my timing is correct?

Sue  11:30

Well, the Department Fair Trading obviously took Toplace to the Land and Environment Court, because they weren’t completing the building rectification orders. At the same time, the owners corporation faced difficulties, with this huge schism between them. One group of owners, who were determined to get the defects rectified, went to NCAT and applied for a compulsory strata administration, so they could get in a strata manager, who would be on their side, and would insist that defects be rectified and wouldn’t just ignore the whole issue. So they went into compulsory strata administration; is that what you call it?

Jimmy  12:12

Well, yes, basically. Because one of the things that was happening with the preponderance of overseas investors (and let’s say a strata manager, who was very sympathetic to their point of view)… They didn’t want to have a fight with Toplace, because they didn’t want the bad publicity, or to pay the legal fees. They didn’t want to fix the problems, because that’s a lot of money, as well. What they basically wanted to do was keep everything quiet until they could sell.

Sue  12:14

 The strata management company, Bright & Duggan, who are very experienced, they started managing the whole process as well. That’s right.

Jimmy  12:50

And then let the next bunch of people deal with the problems. So they’ve lost; that ship has sailed… That’s not gonna happen now.

Sue  12:59

The compulsory strata administration runs out in a week or so and they’ve got another hearing at NCAT. But I mean, it’s unlikely that it would ever be overturned now, in the face of all this publicity. So that’s one battle that has been won, I think.

Jimmy  13:13

Well, these compulsory strata management contracts; they’re originally for a year, but usually, the strata manager turns up after the first year and says “look, it’s not fixed yet. Give me another year,” and the Tribunal goes along with that, and usually for good reason. Once you’ve got a problem in an Australian scheme that’s so entrenched that you need a compulsory manager, it’s not likely to get fixed in one year.

Sue  13:43

But it’s very hard for all the owners there of course, because they’re having to pay for the propping. Toplace has just paid $40,000 towards the cost; towards the $150,000 cost. So that’s great; they won that small concession, but their strata levies have gone up hugely.

Jimmy  14:02

Something like eight times. From $500 to $4,000, or something like that.

Sue  14:09

The owners I spoke to said it’s equivalent to having a second mortgage.

Jimmy  14:13

Well, it would be.

Sue  14:13

And one of them said as well, he’s seeing lots of his neighbours trying to find extra work as delivery drivers in the evenings, because they just can’t afford to survive on just their regular wage, the strata levies are so high.

Jimmy  14:29

So Toplace were taken to the Land and Environment Court. There were rulings against them.

Sue  14:36

That’s still ongoing.

Jimmy  14:39

Also, they had a problem with their licence?

Sue  14:42

Yes, that’s been a recent development. The Building Commissioner’s office took away their (I think their Building and Development licence). So suddenly, it became even more complicated, because even though they were being asked to rectify the problems, they couldn’t do it themselves. They’d have to get in a third-party to do that, because they’re no longer licenced to do that kind of work. That created an extra layer of complexity in recent days.

Jimmy  15:10

I’m going back a few weeks, possibly months; they got their licence taken away and then they applied to have it reinstated, I think on the grounds that they couldn’t do the work that they were being asked to do and they couldn’t earn the money to pay for the work, unless they could stay in business; something like that. I think temporarily, they got their licence back. I may be wrong, but it’s worth checking… And then they lost it again. In the meantime, their CEO (or whatever his title is)…

Sue  15:42

I think he’s the owner and founder.

Jimmy  15:44

Jean Nassif… He went on holiday.

Sue  15:49

He was accused of fraud, about getting a bank loan fraudulently. I think that was the kind of charge that he was facing. And yes, as you said, he went off on holiday overseas. And the police have issued a warrant for his arrest, but they have not been able to find him yet. Which is incredible, because you kind of think well, wherever he is… I mean, people have said Lebanon is a possibility, but you kind of think he would have family there; it would be easy to to track him down. I don’t know if we have an extraction treaty with Lebanon?  But I mean, he could be anywhere, really.

Jimmy  16:27

I mean, the thing is he’s not what you would call a ‘shrinking violet.’ If you recall, there was the famous thing of him giving his wife or girlfriend the yellow Lamborghini…

Sue  16:38

For her birthday. And he videoed it and put it on social media. That’s just what you want, isn’t it, when you’ve bought a new apartment, and you’re hoping it’s going to be alright, and then you can see the developer exhibiting conspicuous consumption in that way.

Jimmy  16:55

A car that costs more than a small apartment. So yeah, he is not, as I say, a shrinking violet. He shouldn’t be too hard to find. But is there an extraction treaty with Lebanon? I don’t know; it could be interesting. So this week, you had a big story in the Sydney Morning Herald; two pages. Very impressive stuff, outlining how the owners in the Vicinity building are at their wit’s end.

Sue  17:26

That’s right. They’re very depressed and very stressed and really frustrated and nothing seemed to be happening. They’re paying all this money in their strata levies. They obviously can’t sell their apartments, because no bank will finance anybody to get a mortgage in the building. They can’t refinance. Lots of them are on fixed-rate interest mortgage payments, and they’re about to go onto variable. They’re probably going to go from maybe, 2%, up to 8% and so they’re facing that mortgage cliff. They’re really doing it hard. Obviously, the cost of living is going up; inflation is 7%. So it’s been really, really difficult for them. And it’s families, it’s young professionals. It’s kind of everybody in that building; it’s a real mix of people.

Jimmy  18:15

So they are desperate for something to happen. And this week, something happened. And we’re going to talk about that, after this break.

[MUSIC]

Jimmy

Okay Sue, so your story comes out and everybody’s reminded of the problem…

Sue  18:36

That afternoon, the developer announces he’s going into administration. Whether the two things are connected, I don’t know. I feel bad, in case they were. I think many people said that they were expecting it. When I spoke to Chris Duggan, who is in charge of Brighton and Duggan, the strata managers…

Jimmy  18:58

He’s also president of the SCA…

Sue  19:00

That’s right, the Strata Community Association Australia. He was saying that it’s not like Mascot Towers, because lots of people have been comparing it to Mascot Towers and saying it’s going to be as big a disaster as that. He said it’s not, because it’s a development company that has a lot of assets behind them. I think many people weren’t maybe expecting them to go into administration; other people might have been a bit surprised that they have. The problem now is that there’s so much uncertainty about what this means. You know, I spoke to owners and they were saying this is obviously their biggest asset (as it is for most of us; their home)…. They don’t have any other savings; any savings they had during COVID have now been depleted by the massive strata levies. What happens if the building is sold from under them? What happens if they’re not classed as primary creditors? I think a letter went out today from the Department of Fair Trading, which is quite astonishing to all those owners, advising them to band together to form one group, to apply for creditor status together. Karen Stiles from the Owners Corporation Network said to me that it is unprecedented, that the Department of Fair Trading would offer that kind of advice. She thought that’s kind of a bright new dawn really, where the department is actually helping owners in their battle to try and get compensation, or to try and find some kind of justice. So that’s one bright spark of light, in the whole horrible, messy, sorry, saga.

Jimmy  20:40

Well, I mean, if they do have these assets, it comes down to how the administrator shares out the bounty that they have. It may be that they will get something back, but it’s just so tricky and complicated. I don’t think your story caused them to go into administration, but it may have triggered their decision.

Sue  21:06

The next hearing in the Land and Environment Court is due soon. The next hearing in NCAT about the compulsory administration was due soon. They’d failed to get their building licence back… I think it was just a bit of a perfect storm, really.

Jimmy  21:20

And I hear that one of the principal players among the residents has already started getting anonymous death threat phone calls. I mean, that could be anybody; it could be anybody in the building, who blames them for their predicament.

Sue  21:38

Well, that’s true. I mean, it’s going to be a horrible, nasty atmosphere in that building, really, between the two sides. It’s just a horrible lose-lose situation, I think.

Jimmy  21:48

But it does partly highlight this problem that we’re having, where buildings do have a lot of overseas investors, who are not interested in anything that’s going to cost them money, or cost the value of their building, and who don’t want levies to go on repairs, or legal action, or stuff like that. I mean, this is not the only building in Sydney or indeed in Australia, where that absentee investor (and there are a lot of absentee investors who live somewhere else in Australia), is just not prepared to contribute. And I’ve always said that people who live in strata buildings (resident owners), should get two votes. You vote as an owner and you vote as a resident, because they are paying… If things go wrong, it’s the resident owners who pay and they’ve invested their time and their wellbeing, their health and their mental health in the building, as much as they have their money.

Sue  22:54

The difficulty is yes, it is wrong that some of the overseas investors don’t want anything to do with it. But as well, maybe they just don’t really understand and they don’t appreciate what a mess our construction industry can fall into. You know, I was talking to another owner, who’s actually an investor owner. She lives in Australia, but she has tenants in the building. And she was saying “I can’t believe that this could happen in Australia today.” She said “you know, it could have happened in a third-world country, but I would never have believed it would happen in Australia.” I think a lot of overseas investors think we are really safe country to invest their money in and we certainly should be. But it’s just unfortunate that there’s a few bad projects, which have cost them a small fortune.

Jimmy  23:45

And we’re still going through the process of clearing these out of the system. I mean, it didn’t help, I believe, that there was one player involved in the whole scandal at Vicinity, who was communicating with the overseas investors and telling them that it was the resident owners that were the problem.

Sue  24:04

They were the troublemakers.

Jimmy  24:05

Yes. And getting their votes and getting people elected to the committee, on the grounds that they wouldn’t do anything. And that is where the frustration and anger came from. But that’s down to one person, who was basically interested in keeping in with the developers and therefore, putting out a lot of misinformation.

Sue  24:25

And now there’s an awful lot of distress obviously, and a lot of worry and anxiety. But there’s also a hell of a lot of anger, not only against the developer, but against the government, for allowing this to happen. And people are saying surely, the government should have stepped in earlier, and the government should have helped compensate them; made a contribution towards all the costs of the propping and the cost of the legal action. They have a point; I mean, the government collects stamp duty from all those sales of apartments. The government issued the occupancy certificates; surely, they have some responsibility?

Jimmy  25:04

And decades of government have encouraged developers to play fast and loose with the laws and construction codes and whatnot, and then they wander off… Every four-or five-years they get re-elected or not re-elected, and there’s no responsibility; there’s no continuing responsibility for the political and economic decisions that are made.

Sue  25:28

And it’s really hard, because this has created another landmark in the sad history of New South Wales construction. And there are lots of other buildings at the moment, with building rectification orders on them that are not up to scratch and they have to do stuff to bring them up to standard. You kind of worry that looking at this situation, they might say “oh, maybe we’ll go into administration; maybe that’s the easy way out?”

Jimmy  25:55

Maybe one thing the government could do is just come in and buy the whole building. And if they can fix it, fix it; if they can’t fix it, knock it down and build something else. Maybe some social housing would be an answer?

Sue  26:06

But then all these people would be homeless, wouldn’t they?

Jimmy  26:08

Well, they’d have money, and they wouldn’t have bills.

Sue  26:11

Yes, but there’s such a shortage of housing stock on the market, where are they going to buy?

Jimmy  26:16

Maybe the government could be their landlords, then?

Sue  26:20

Maybe they could turn it into a build-to-rent? Oh, but they want to own property, of course.

Jimmy  26:24

Well, they can’t have everything. I mean, I think the chances of the government coming in and buying the whole building are very, very limited.

Sue  26:34

But you hope the government; if they can get the money from Toplace, that’d be fine. But the administrators were saying yesterday that Toplace have a lot of creditors… They owe a lot of people a lot of money, including employees.  I don’t know where the owners of apartments would be in that list of priorities. But one would hope that they would be quite close to the top, because it’s a life and safety issue, more than anything else.

Jimmy  26:59

I do know for instance, if you’re chasing levie debts, which you’re hoping to get out of the sale of the property, you have to establish your position as a principal creditor. It’s a small legal thing, but it has to be done. And if they hadn’t established what Toplace’s actual responsibility is financially, then it might be hard for them to claim. It’s just very, very complicated and it shows you what happens when people turn a blind eye to problems in the building industry. And we’re very lucky… What we’re going through now is a process where all the stuff that has been swept under the carpet is now coming out. So we’ve got piles of dirt, but at least they’re coming out from under the carpet and the processes are in place, for that not to continue any longer.

Sue  27:55

Let’s hope so. But It’s sad that these are the people being sacrificed, to get to a better future. You know, one guy I talked to, he was saying that he bought an apartment in there, because him and his wife were hoping to start a family. But because of all the stress and worry and all the problems and the financial difficulties, they decided it would be irresponsible to start a family at this time. So you know, his life is on hold and he’s not getting any younger. And another family I talked to, they’ve got two young children, aged two and five and they just worry about the safety of their kids. How can you relax and have a really pleasant, happy family life? I mean, I’m sure the kids pick up on the anxiety of the parents. These are a professional couple; it’s not just people who are really struggling…  It’s not real battlers; it’s people who have saved all their lives.

Jimmy  28:52

They’ve earned their peace and quiet and their security and their home and it’s all been taken away from them. Well, let’s hope there’s some positive resolution from all this. But as you said, it’s another landmark; let’s not have too many more of them.

Sue  29:08

Absolutely.

Jimmy  29:09

All right. Sue, thank you for all your efforts on this front. And thank you all for listening. We’ll talk to you again soon. Bye.

[MUSIC]

Jimmy

Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website, flat chat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favourite podcatcher. Just search for Flat Chat Wrap with a ‘w,’ click on subscribe, and you’ll get this podcast every week without even trying. Thanks again. Talk to you again next week.