Australian Developer’s Financial Woes Impact Adventist Institutions

When Australian developer Keith Johnson placed his company, Johnson Property Group, into “voluntary administration” (similar to bankruptcy proceedings) with reported losses of about $150 million, Avondale College announced a delay in an endowment planned for the higher educational institution. According to media reports, the Johnson Property Group is one of New South Wales’ largest private land developers and is best known for its huge masterplan communities. Mr. Johnson is a member of the Avondale College Church.

In an Adventist Media Network story on May 5 Kent Kingston reported, “Johnson Property Group financed the rezoning of 250 hectares of land about two kilometres north of the Avondale Estate in Cooranbong but found it difficult to obtain further finance for development. . . The 28-day voluntary administration ends in May. If Johnson Property Group has secured finance by then, development will continue.” And the story quoted Johnson as being confident about obtaining financial backing for development. Record writes, “Everything doesn’t depend on this,” said Avondale president, Dr Ray Roennfeldt. He admitted it’s discouraging to see the timetable extended but “the endowment fund wasn’t going to be available for ten years anyway.”

On May 26, the Australian Financial Review (similar to the Wall Street Journal) ran an article titled “Adventists pour $70 million into developer.”

Responding the day after, South Pacific Division Treasurer Rod Brady and President Barry Oliver wrote to division staff to say that the story was inaccurate, explaining that “the SDA Church in the South Pacific Division is associated with Keith Johnson in two property investments:”

1. The North Cooranbong property: The church has a joint venture with the Johnson Property Group to develop land it (the church) owns at Cooranbong. JPG borrowed funds from Avondale College Foundation Investments (ACFI) to purchase an additional parcel of land which would assist this project. When ACF Investments encountered financial difficulties the church agreed to refinance this loan in order to assist depositors of ACF Investments. This loan is secured and the plan is to refinance this after the development at Cooranbong commences.
2. Property Development in Sydney: A loan exists in relation to a project for the development and sale of residential blocks. This is secured by a registered first mortgage. The company is not owned by JPG but is majority owned by Mr. Keith Johnson in his own right for a residential development. This loan is not in default and is being serviced and interest paid by the sale of residential land. This mortgage is secured by a “belts and braces” approach to security and no loss is expected.

The Johnson Property Group (JPG) has used its own resources to successfully achieve rezoning outcomes on two of the Division’s key estates – Wahroonga and North Cooranbong. This outcome has been on enormous benefit to the church both in terms of adding value and being able to continue utilizing the land for its own use. A major expansion of Sydney Adventist Hospital costing $180 million has been made possible by this rezoning.

In order to protect the church’s funds, but also earn a reasonable return, the Church invests its funds in a variety of ways. It has a conservative investment policy that has served it well during the extreme turmoil of the Global Financial Crisis (GFC). Investments are overseen by a Board and there has been no departure from the investment policy. Property investment represents only a small portion of its investment portfolio.

A story from about a year ago noted the beginning of a $780 million redevelopment deal including the Johnson Property Group and Sydney Adventist Hospital.

According to an April article in Smart Company, “while Johnson Property Group claimed just three years ago to have a land bank with 12,000 lots and a total value of $3.5 billion, Keith Johnson has told the AFR that he is now ‘worth nothing’.”

He said delays with local government planning processes had meant he was forced to hold on to land while paying ever-increasing interest charges.

 

The global credit crisis – which has been a particular problem for property developers – has also dried up Johnson’s funding sources.