Billion-dollar property collapse highlights private credit danger

Jon Adgemis raised the white flag last October.

With forces closing in from all sides, he declared himself bankrupt to avoid the ignominy of being compelled by his long list of creditors into a life of penury.

His hospitality dream in ruins, the former Maserati-loving playboy somehow managed to rack up $1.8 billion in debt — much of it from private credit firms — over a hotel portfolio that cost less than $300 million to assemble.

Liquidators will attempt to unravel the mystery behind Adgemis’s incredible rise and spectacular fall later this week when they begin examinations in the Federal Court.

A conga line of former business associates and love interests have been requested to produce records of their dealings with the one-time KPMG high-flyer.

But there are broader implications.

The examinations of the Adgemis property downfall may well shed light on the extent to which private credit firms, essentially a shadow banking industry with little or no regulation, have their hooks into the economy.

Born out of the tighter regulatory climate after the global financial crisis, they blossomed in Australia in the wake of the Hayne royal commission into banking misconduct.

The Adgemis hearings come at a crucial inflexion point.

The Australian property market appears to be on the cusp of a prolonged downturn, the first since 2017.

That is likely to plunge property developers, the group that overwhelmingly relies upon non-bank loans, into a world of pain that could ripple through to builders and subcontractors.

And it follows warnings from Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC), about the dangers building within this largely unregulated arena.

Marketed with limited regulatory oversight, the industry has attracted cash from retirees and investors seeking high returns in what many mistakenly believe are safe mortgages.

From tiny amounts just a decade ago, ASIC estimates that close to $250 billion in loans are outstanding, an amount that could inflict serious pain on the economy if large numbers of these loans soured.

When friends fall out

Jon Adgemis was the consummate networker.

A deal maker who cultivated an image of success, he advised some of the nation’s biggest firms and befriended billionaires in his quest for success.

WIN TV owner Bruce Gordon was once a fan. So too was Jan Cameron, the force behind Kathmandu. Both severed ties with him after disputes over money six years ago.

He bought his first pub in 2015 in Balmain, Sydney, adding another three in the trendy inner-west over the next two years.

But from 2020 on, right through the COVID-19 lockdowns, he added another 14 establishments, mostly in Sydney with a few in Melbourne.