Trouble in paradise: How an ambitious property developer came a cropper

Melbourne property developer and funds management king Paul Chiodo was knocking on the door of billionaire status.

In just a few years, the South Melbourne Football Club director’s business – Chiodo Corporation – rose from a suburban property developer knocking out solid and well-sold small-to-medium-sized builds to a major property player.

Using flashy Instagram posts of project renders and media campaigns, Chiodo Corporation touted itself as one of the best developers of opulent, high-priced resorts in desirable locales such as Port Douglas and K’Gari (Fraser Island) as well as Fiji and Venice.

Chiodo also ran a successful Melbourne-based funds management empire through Keystone Asset Management and CF Capital. In 2023 alone, the empire’s Shield Master Fund raised $326 million from thousands of investors for investments in ASX companies and unlisted assets such as property and debt instruments.

Asked in a 2021 interview where his ambitious dreams came from, Chiodo replied: “To be perfectly honest, I got bored five years ago just doing the traditional rat-race developments. We just wanted to do something really different.”

Chiodo and Keystone are now subject of an investigation by the corporate watchdog, which has taken Federal Court action to protect investor funds while its review is under way.

The Australian Securities and Investments Commission is concerned a large proportion of the funds held by Shield were improperly directed to another of the empire’s funds, the Advantage Diversified Property Fund. The fund, in turn, made loans to various companies associated with Chiodo’s property development empire, according to ASIC.

Asked to comment, Chiodo strenuously denied the allegations.

“We welcome continued dialogue with ASIC and are co-operating fully,” he says. “We are, of course, disappointed by their unnecessary and misconceived ex parte action.

“While no doubt well-meaning, the concerns were misplaced, and we intend to continue to work with ASIC to make improvements to ensure that members can continue to earn above-average returns.”

The fund has been effectively frozen since February following an ASIC request. That has since trapped investments in the fund from clients of financial planners using Macquarie’s platform, NQ Super members, and clients of advisers working under the licence of MWL Financial Group and Interprac, among others.

Worse news for investors could be yet to come.

An investigation by this masthead has found that many of Chiodo Corporation’s big-ticket developments are facing serious trouble obtaining planning permits, and in some instances are expected to face lengthy legal challenges. These delays, at a time when economic headwinds are buffeting the construction industry, could mean the projects are not completed within the initially advertised time frames and at a much higher build cost.

The investigation has also uncovered new information, including a key Advantage Diversified Property Fund document, that throws doubts on claims the mortgages the fund invested in were as secure as claimed.

Chiodo has described ASIC’s actions as “precipitous” and says the fund had been travelling well, adding that ASIC’s actions “have had the unnecessary effect of causing disruption of Keystone-funded projects, interrupting the delivery of urgent housing to Victorians”.

“This has halted all redemptions, including hardship, and slowed projects including investment settlement on a significant international asset that will deliver members significant uplift,” he says.

Asked if he feels unfairly targeted by ASIC, Chiodo says: “Absolutely, from a personal point, incorrect details were provided to the court to have my passport removed and freedoms infringed upon, based on a mistaken identity. But I’m prepared to move on and work positively with ASIC for members’ benefit.”

Troubles in paradise

Far from frosty Melbourne, former Douglas Shire mayor Michael Kerr is seven months on from the council’s landmark win at the Queensland Environmental Court that snuffed out Chiodo Corporation’s $300 million mega-development plans for a site overlooking the Coral Sea and Mossman Gorge.

The project, targeting the super-rich and celebrity market, would house Australia’s first Fairmont Hotel and would boast a wedding chapel, conference centre and lagoon pools. Chiodo Corporation brought in Jamie Durie for the landscaping, a multimillion-dollar contract that landed in court with Durie alleging his company hadn’t been properly paid before the matter was happily resolved by the parties.

Michael Kerr is the former mayor of Port Douglas.Credit: Instagram

Kerr, who as mayor welcomed major developments from Melbourne developer Tim Gurner and a wave park, said the council’s decision was appropriate and upheld by the court in late 2023.

“He was trying to put a Fairmont on a block of land that was designed for Mercure,” Kerr says of Chiodo Corporation’s aspirational development plans.

“It was probably the most well-advertised resort development that has never been approved.” Chiodo describes this statement as incorrect and mean-spirited.

It was also a bruising court loss for Shield investors as the fund was indirectly exposed to the project via the Advantage Diversified Property Fund.

According to the fund document, seen by this masthead, the fund had invested in a convertible note for the now-axed project that had promised returns of more than 10 per cent a year.

Douglas Shire Mayor Lisa Scomazzon confirmed that Chiodo Corporation was still seeking to build at the site.

“A development application has been made for a revised development for the site. However to date, the development application is not properly made,” she said.

“Council has provided the applicant with an extension of time to make the application properly ... under the Planning Act 2016.”

Chiodo told this masthead he was confident his development arm could soon start on the site, saying Fairmont was still keen on the project and that he had support from the Queensland government and the mayor.

Other mortgages for developments listed in the fund could face similar struggles.

One of those is on K’gari (Fraser Island). Chiodo Corporation raised the eyebrows of locals in April 2023 when it announced a $250 million high-end development on the World Heritage-listed sand island, replete with lagoon-style pools, a function centre and an amphitheatre.

A render of Chiodo Corporation’s planned resort on K’Gari (Fraser Island)Credit: Instagram

Butchulla Aboriginal Corporation, which manages the rights of the area’s native-title holders, slammed the lack of consultation, saying Chiodo Corporation only spoke with a small local Indigenous group. The property sits on leasehold land covered by the corporation’s native title, and is advertised as ready for opening in 2026.

Sources, who asked not to be named so as not to cause difficulties in the small K’Gari community, said it was unlikely the project would go ahead without a long legal battle. A spokesman for Fraser Coast Regional Council also confirmed to this masthead that the council was yet to receive a development application for the project.

In his statement to this masthead, Chiodo claims a group of “traditional owners” who were part of the Butchulla clan supported the project, which would provide employment for local Indigenous people and “genuine economic empowerment”.

“Clearly, such negotiations are sensitive, difficult and complex,” Chiodo said when asked about the Butchulla Aboriginal Corporation’s concerns.

More than 3000 kilometres across the Pacific, another Chiodo Corporation development in Fiji appears to be more visionary than easily achievable by the advertised opening date of 2026.

According to online promotional material, the sprawling $300 million hotel is to be built on the island’s west coast and sport a wedding pavilion, spa, 10 restaurants and deluxe accommodation for those recovering after treatments at an onsite cosmetic clinic. It appears that the project might be some time off.

A local real estate source, who sells property in the area of Fiji where the resort is planned, and asked not to be named for business reasons, said he was surprised to learn of the development from an Australian journalist.

“No luck finding any info about this project in Fiji,” he says. “We’ve heard nothing about this project.”

The render for the Fiji resort being planned by Chiodo Corporation. Credit: Instagram

Chiodo says the source is wrong and that his company has development approval and the support of a leading hotel chain, and had already started minor infrastructure works on the site. He expects major works beginning in the next four months would be delivered “on time”. Like many of Chiodo Corporation’s other projects, the Advantage Diversified Property Fund has also invested in a convertible note for the development.

‘Default position is failure’

Leading Australian hotel and resort industry figure Dean Dransfield has worked on 100 major hotel projects across the country and is regarded as one of the best operators in the field.

Dransfield says Chiodo Corporation’s plans were hamstrung by the company’s lack of experience on major builds.

“I think the issue is that the default position on resort development is failure … and these guys are doing their first so it’s just really, really hard,” he said.

“The secret in Australia to resort development is you must have massive capital discipline because customers will not pay enough to stay somewhere for between one and five nights to build a residential Taj Mahal.”

Another leading resort broker in Australia, who asked to remain anonymous to speak freely, said Chiodo Corporation’s K’Gari, Fiji and Port Douglas plans “look amazing, almost too amazing”.

’They look like incredibly intricate and expensive builds – exactly what is expected of a high-end resort.

“You know, sometimes the ideas are bigger than the actual developer.”

A third hotel industry executive, who also asked not to be named for employment reasons, said the economic climate that had taken property developers and builders to the wall across Australia was another factor that would have clouded Chiodo’s business outlook, particularly for large projects.

Back in Melbourne, work appears to be moving very slowly at the other developments with mortgages listed in the Advantage Diversified Property Fund.

Small, beautiful and delayed

On the reaches of the northern Melbourne suburb of Glenroy, Chiodo Corporation is developing a 30-plus apartment project that backs onto the roaring 10-lane M80 ring road. When this masthead visited the site, the development appeared to be inching along, with wooden frames erected and concrete poured.

The vision and progress of the group’s Ashburton development.

Work also appears to have slowed at Chiodo Corporation’s 22-apartment “The Aston” development in Bentleigh, and the group’s Ashburton development of eight luxury townhouses, both in Melbourne’s eastern suburbs as well as at the 18-apartment Nue development in the inner north-west suburb of Moonee Ponds, which started construction in 2018. A fifth project in Port Douglas faced significant delays after the Queensland building watchdog banned the projects’ builder, Frank Nadinic, a Melbourne builder of some notoriety, in 2019 after subcontractors on the project were not promptly paid. Nadinic was in 2023 bankrupted for the fourth time.

A review of land title records by this masthead has found there could also be issues in terms of when the mortgages listed in the funds for these developments were secured.

“The Aston” development in Bentleigh.

The progress and likely outcomes of Chiodo Corporation’s projects, and where investors rank in the scheme of the loans provided to keep the development operation going, are of keen interest to investors, the corporate watchdog and Chiodo’s business interests.

Several of the projects listed in the April 2023 fund documents match court orders put in place in June, though the K’Gari project is not listed in the orders. Two other properties – a rural property in Bellmere, Queensland and Chiodo Corporation’s JW Marriott La Sessola Hotel refurbishment in Venice – are listed.

Of the five still under development, of the projects with first or second mortgages listed in the April 2023 fund document as “secured”, four had mortgages that were registered in March and April this year.

A $10 million development brokered for Chiodo Corporation by financier Assetline Capital could also become an issue for investors in the fund. The loan is registered as a mortgage over the Bentleigh project, giving the lender the first mortgage over development, as fully disclosed to investors.

According to the mortgage document, obtained by this masthead, the $10 million loan was guaranteed by Chiodo personally, Chiodo Corporation, and a range of associated companies, some of which have assets tied to the Advantage Diversified Property Fund. That guarantee could cause heartache for investors, with the mortgage potentially giving the lenders the right to the assets in these companies before investors in the fund receive any payout. Only $5 million of the loan was ever drawn down.

Asked if the registration of the mortgages could have been more timely, Chiodo says: “I agree that these could of [sic] be done more timely, but all securities have now been registered to ultimately protect and serve the best financial interests of members.”

He adds: “All construction works are still ongoing under a minimal regime until the conclusion of the ASIC matter. ASIC intervention has badly impacted the projects, as well members, due to the volatile state of the construction industry.

“Keystone’s legal team continually wrote to ASIC to warn such action would have detrimental impact on the assets of the fund.”

Chiodo also says the current supervision orders of Keystone – put in place by the Federal Court, that require receivers from Deloitte to approve any release of funds required for any project – has also slowed build times. “These orders will continue to cost members value.”

The matter is expected to return to court on August 27 and there remains a chance that Chiodo’s brush with the regulator will be quickly resolved.

Meanwhile, Chiodo has been able to taste some, albeit modest, success.

On August 6, between Federal Court hearings, Chiodo Corporation and CF Capital helped host a cocktail function at Lakeside Stadium in Albert Park in honour of South Melbourne FC making the Australia Cup.

South Melbourne – aka Hellas – then went on to thrill the club’s fans that evening by upsetting the Kiwi A-League footballers.

It seems that at least one of his dreams – that of South Melbourne FC dominating a national second-tier soccer competition – is still well and truly alive.

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