For a further 16 private investors who committed $5 million in unsecured funds to Auckland developer McEwan Group for the project, the prospects look bleak, with the recouping of individual investments of up to $150,000 dependent on how much is left over once South Canterbury Finance recovers its money.
The future for the purchasers of 34 apartments in the complex is also unclear.
South Canterbury Finance on Wednesday took possession of the former chief post office in Dunedin's Princes St to protect its first mortgage loan.
Chief executive Lachie McLeod said that given financial problems facing the development, a mortgagee sale was the only option for his company.
The project had stalled, caught up in the international credit crunch, which meant development time lines had not been met.
In October, the renegotiation of a loan had not gone ahead.
"If it had been 18 months ago, getting development funding would not have been a problem," Mr McLeod said.
A private investor, Geoffrey McLennan, accepted he had lost his $100,000 investment but was not bitter, saying he had made the investment with his eyes open.
"It's a shame. It would have been great for Dunedin," he said of the project.
He had met developer Dan McEwan before investing and found the offer very attractive.
Mr McLennan said he also checked on Mr McEwan's reputation and the only reservation expressed was the number of projects to which the Aucklander was committed.
He said he hoped the Otago Regional Council would look at making use of the building, rather than spending about $28 million on new foreshore offices.
Another investor, who asked not to be named, said it appeared to be the end of the development.
"I guess it's [the $100,000 investment] gone. It was a mistake, but at the time the economy was in good shape."
While he was not surprised the project had encountered difficulties, given the trouble other companies belonging to Mr McEwan had experienced in recent months, he had hoped the project could still be rescued.
In October, South Canterbury Finance, through its then subsidiary Otago Finance, issued a Property Law Act notice against the McEwan Group to give it the option of selling the building to recover its $5 million first mortgage loan.
The proposed $85 million hotel development would be the fifth since 1993 that the owners of the nine-storey former chief post office had failed to bring to fruition.
Last month, it was announced a McEwan development at Waiwera, north of Auckland, was on hold and the land on the market, while four McEwan-related companies, including the McEwan Group, renamed Ro-Ro Investments, were last month placed in liquidation.
Inland Revenue requested the liquidation, which Mr McEwan said he disputed.
Earlier this month, Mr McEwan was convicted in the Auckland District Court of six Securities Act breaches over two McEwan Group projects in Queensland and Fiji.
Attempts to contact Mr McEwan for comment on the project were unsuccessful.
