Poker king: cards fell against Centro

The Centro saga has been hard to avoid over the past 15 months. The owner of the country's second-biggest retail property portfolio had the near-impossible task of refinancing almost $4 billion of debt in the midst of the global credit drought.

Since then, directors have left, lawyers have begun class actions against the company for allegedly misleading investors, and Centro picked up the title of being the country's worst performing listed property trust in 2007-08, losing a massive 97 per cent of its market value.

Even the long-awaited debt refinancing plan agreed to this month has done little to lift Centro's share price, due to the dilutionary effect of the deal on the company's share register.

As Centro collapsed like a house of cards, one interested observer watched while dealing with cards of his own - world-ranked poker player Julius Colman, who sold property syndication business MCS Property into Centro for $193.5 million in 2003.

But the paths of Colman and Centro may cross again.

In August, Colman put together a consortium - along with the Myer family and AFL chairman Mike Fitzpatrick - to try to buy Centro MCS back.

"We mistakenly made a financial offer last year, have since decided it was ill-advised," Colman says. "It came about because I felt a responsibility to investors in the syndicates we had put together, but Centro had more important things on the agenda, like getting the refinancing done, before it worried about asset sales."

Colman has since dismissed any idea of buying back the company he helped create - "I'm enjoying retirement and playing poker too much" - but that hasn't stopped him from approaching the board and offering his services to try to turn the company around.

Glenn Rufrano, the New Yorker who brokered the deal with the banks, has already flagged his departure from the country, saying he wants to return to the US.

That leaves management of Centro in limbo.

"I have made an offer to help Centro's management find a way out of its problems, but I don't want to say any more now because the debt has only just been rolled over. But if they start looking for someone who knows the business, then I am around." Rewind to 2003 and the purchase of MCS Property was meant to be a company-maker for Centro.

Born out of the small suburban legal firm of McGrath Colman Stewart back in 1975, MCS Property was Australia's biggest property syndicator. Thousands of investors in syndicates put together by MCS Property controlled $1.4 billion of property assets in Australia.

Indeed, MCS Property was the major landlord to both Coles and Woolworths, leasing more space to the supermarkets than any other player in the market.

Picking up the MCS Property portfolio of mid-sized shopping centres propelled Centro to the big end of the property sector, making it the biggest manager of shopping centres in Australia, and second only to Westfield in terms of the retail space it managed.

The sale provided cornerstone investors in MCS, including the Myer family and Hastings Funds Management - then backed by Mike Fitzpatrick - with a windfall.

Colman thought shopping centre management was behind him when he retired shortly before turning 60 to pursue his love of poker.

In 2007 he made the final table at the Aussie Millions tournament, picking up $500,000. He has also competed at the World Series of Poker in Las Vegas. All of his winnings so far have been donated to the Colman Foundation, which pays for the education of talented but underprivileged children.

Over breakfast at Melbourne's Crown Casino, where Colman has been competing in the 2009 Aussie Millions tournament, the poker aficionado likens Centro's woes to a bad deal on the card table.

"In poker, like in business, you do your maths, you do your due diligence on opponents, but you just can't account for bad luck," he says. "A business deal can look like a winner on paper, but it can still go bad. It's like that with Centro. They were renegotiating their finance, they had the deal at the point where they were haggling over a percentage point or two in interest, then bang, there's no money at all coming from the banks because of the credit crunch. Unbelievable bad luck."

Watching Australia's top-ranked poker player, Joe Hachem, compete at Crown this week made Colman think of Centro's woes.

"Joe had two aces, the other guy a two and a five off-suit. All the maths says Hachem's going to win, better than an 80 per cent chance. Then they flop the cards, and there's a two and a five sitting on the table. This guy's got two pairs, Joe's sitting on a pair of aces and is out of the tournament. That's pretty much what happened with Centro - bad cards at a bad time."

Colman and the partners in a small law firm in Reservoir, north of Melbourne, bought a single property back in 1975 to help a disabled owner invest a compensation pay-out. "We were just a small suburban firm, but we found many of our clients had blown their compensation money within a year because they had no idea how to invest," Colman says.

"In 1975, we bought a one-bedroom flat on behalf of a client for $4000. The first rent cheque I picked up was for $8. A year later, we had three flats. Two years later, we were starting putting property syndicates together and had 25 flats.

"MCS handled the rents and took a management fee. By the 1980s we'd forgotten about the legal practice and were running a property syndication business in which anyone could invest."

Until its recent woes, Centro MCS returned more than 17 per cent per annum in each year of its operation. But the complex MCS syndication business added to the incomprehensible structure of Centro, all of which ultimately obscured a big hole of debt.

In Colman, Centro would find an executive with an interesting take on business deals, but one who's not ready to gamble.

"Poker isn't gambling," Colman says. "It's actually business at its highest. You have to make the best decision you possibly can based on risk and reward. The only difference is that, in poker, you live with the consequences of that decision immediately. There's an instant scorecard, which you don't get in the business world."

Many are still waiting for Centro's score card to come in.