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December 2007
A controversial Aussie bank invests in a key Loudon County development
The name Macquarie may be lost on most in Tennessee's business circles. That is, unless one's circle encompasses Loudon County, where Macquarie, the Australia-based megabank, extended its global investment to build the half-billion dollar Tennessee National golf course and residential development.
Macquarie's controversial way of handling its operations has been a hot topic this year, fueled by verbal attacks from James Chanos—the New York hedge fund manager famous for outing Enron—who called the bank a fraud because of its self-destructive way of borrowing money to pay out dividends.
It is difficult to follow Macquarie's financial trail—one that now runs from the Land Down Under to Chattanooga's fireball real estate broker John "Thunder" Thornton. Thornton sold the 1,450 contiguous acres of land along the Tennessee River that's now home to Tennessee National to Medallist Developments—a partnership between Macquarie and famed golfer Greg Norman's Great White Shark Enterprises.
In its homeland, Macquarie is seen as a corporate superstar with half-year 2007 profit topping $A730 million. Its aggressive investment scheme, known as the "Macquarie model," involves buying assets and spinning them off into trusts and funds controlled by the bank. Macquarie collects fees from its investments.
While Chanos openly criticizes the model, he declined to comment on Macquarie's specific investment in Tennessee National (via the Medallist partnership).
The Macquarie scheme, although highly controversial, works as long as the markets in which the asset lives remain strong.
That's not the case here.
It's no secret that the bottom is dropping out of the U.S. housing market, which is causing sluggish sales at Tennessee National, says Mick O'Brien, COO of Medallist U.S. He maintains that the Loudon County development is faring better than its competition, having sold 220 lots since its 2004 groundbreaking with more than 40 homes going up and five families now residing there.
"Macquarie understands this and is in it for the long haul," O'Brien says. In response to the flurry of controversy surrounding the bank, he adds, "Macquarie is the most highly regulated component" in the partnership.
With no sign of immediate relief, Tennessee National will "hunker down," continue working leads and building a marina while waiting for a housing market upturn, O'Brien says. It could be another 12 months before real estate makes a comeback. But, Macquarie will continue to sit pretty, collect its fees and fuel the million-dollar model.
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