When a $3 billion business suddenly collapses, with losses potentially exceeding $300 million, you’d expect it to be front-page news — especially when the people involved are the scions of two wealthy Melbourne families.
Alas, the demise of the Steller Property Group has largely been confined to the commercial property pages, despite the scale of the calamity involved and even a cameo appearance by Mick Gatto.
Property developers are often the canaries in the coalmine before a downturn really hits. Not only do they tend to take huge risks, but slight mishaps are magnified and can cause massive losses.
In Stellar’s case, the mishaps weren’t slight. Property sources claim that Steller had been massively overpaying for sites, and their main sources of funding were shadowy hedge funds and mezzanine lenders.
In short, Steller was a ticking time-bomb.
The man with his hands on that bomb was Nick Smedley, son of the late Peter “Pacman” Smedley. Peter had a fearsome reputation in corporate Australia. From his time running Mayne Nickless, to his acquisitive streak at the helm of Colonial, Peter Smedley is understood to have reaped a fortune well into the tens of millions of dollars during his career.
For a while, it looked like his young son, Nick, would do even better. But the younger Smedley had a torrid start to his career. Smedley was fined $750 and placed on a 12-month good behaviour bond, without conviction, in 2007 after pleading guilty to assaulting his then-fiancée at his parents’ house. The court heard that, at one point, Smedley hid in a wardrobe for hours before confronting the victim and smashing her phone — allegedly both his parents witnessed the attacks.
Around the time of the court case, Nick Smedley teamed up with Simon Pitard to form Steller Developments — a niche developer of residential apartments in middle-class Melbourne suburbs like Bentleigh and Cheltenham.
Pitard’s wealth came the old-fashioned way: his wife, Skye Knowles, being the daughter of legendary aged care entrepreneur, Russell Knowles. Along with his brothers John and Graham, Knowles sold their Arcare aged care business to Stockland for $329 million. The family’s wealth was estimated at more than $562 million by the BRW Rich List in 2015.
Smedley and Pitard looked to be young men on the rise. The business was apparently successful enough to afford two helicopters (albeit generously financed by the Bank of Queensland), while Smedley agreed on — but later backed out of — the purchase of a $9 million home in Melbourne’s leafy Glen Iris, costing him a $900,000 deposit.
Steller earned a reputation for grossly overpaying for blocks — in some cases by upwards of 50% more than any other bidder, at the peak of the property cycle. The group’s best-known development, the $80 million Continental Hotel project in Sorrento, is now being developed by Steller’s former joint venture partner, Julian Gerner.
Steller’s foolhardy strategy was funded largely by Hong Kong-based hedge fund OCP, which bizarrely lent the group almost $100 million. Sydney-based Atlas Advisors was also a significant lender (and had security over a number of Steller’s residential developments). It appears the big banks largely steered clear of the failed developer.
The clean-up process is likely to take several years, with lenders unlikely to see the majority of their investment back.
It seems likely that Smedley and Pitard would have given personal guarantees to their companies, which is already becoming an issue as lenders try to recover a $10 million Peninsula property portfolio owned by Pitard’s wife.
It’s probably fair to suggest that Pitard won’t be needing a helipad at his next holiday house.
Adam Schwab is the author of Pigs at the Trough: Lessons from Australia’s Decade of Corporate Greed. He is also a director of Private Media, publisher of Crikey.