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This included the transformation of the heritage-listed venue into a five-star resort with more than 100 rooms, a wellness centre and event spaces as well as eateries, a cocktail lounge and a rooftop bar.
The Continental after its redevelopment by the Smorgon family led consortium. Credit: Greg Elms
Gerner alleges in court documents that not only was he instrumental in putting the plans for the development, he was led into believing he would have a stake in the hotel’s future on several occasions during early 2020.
His lawsuit lists the consortium entity Continental Hotel Investments and two Smorgon family companies – SI Capital and VBS Investments. The case is so fresh there has been no defence filed yet in the matter.
A spokeswoman for the consortium said it was aware of the recently filed claim which related to discussions that took place in early 2020.
“We consider the allegations to be without merit and intend to vigorously defend the proceedings,” she said.
“As the matter is before the courts, it would not be appropriate to comment further.”
Gerner also declined to comment in detail as the matter was before the court. “The statement of claim sets out my position. I will allow the court process to run its course,” he said.
In court documents, Gerner alleges his deal with the Smorgon-led consortium was first put in place at a meeting at his restaurant, Morgan’s on the Sorrento foreshore, in the first few days of 2020 with Victor Smorgon Group executive chairman Peter Edwards and longtime Smorgon family lieutenant Michael Iacobucci.
Gerner claims that at the meeting, Edwards and others in the consortium agreed that Gerner would be involved in the development and depending on its financial performance he would receive 20 per cent of the equity in the completed project.
He adds that he was assured by Edwards he would not be excluded from the development deal.
“Edwards told Gerner during the meeting: ‘Don’t worry, we will not be doing this project without you’,” the court documents claim.
Gerner alleges further meetings were held between the parties at Victor Smorgon’s offices in the Como building in South Yarra and other locations throughout January and that led to a formal agreement – known as a terms sheet – being drafted and signed by Edwards and Gerner.
He then alleges he provided the Smorgons with access to a “data room” that included a raft of documents relating to the redevelopment of the property – including financial modelling and development plans – to assist them in conducting due diligence on the project.
Gerner had long been a believer in the redevelopment of the Continental Hotel, which had become a point of pride for him after a rocky few years that had led him to working with the Smorgon consortium.
In 2016, he purchased the property with the view to redeveloping it – it would be a decision that would spark a torrid time in the history of the hotel’s ownership.
The Conti in the 1960s
Gerner brought in a joint venture partner – property developer Stellar Group – in 2017 to help build the massive development. Stellar Group spectacularly collapsed in 2019, leaving works incomplete at the site.
Stellar’s administration led to the joint venture between the developer and Gerner’s group falling over and receivers being appointed over the property and development.
Receivers had then tried to sell the property to a new partnership between Gerner and a group called LBA Capital, but the deal fell over after LBA’s assets were frozen.
At that stage, Gerner was already in discussions with the Smorgon-led consortium and thought he still would be involved in the project as the Smorgons did due diligence on his proposal.
In February, Gerner alleges receivers to the development offered him $650,000 to remove his caveats and relinquish his rights to facilitate the sale to new owners. He refused.
By March the Smorgon-led consortium – which was continuing its extensive due diligence of Gerner’s plans – met and agreed that they could get the property cheaper if the offer came from one of the consortium partners rather than the consortium itself.
As part of the new arrangement, Gerner would relinquish his rights to the property and withdraw caveats over the property that was stymying the sale of the land by receivers.
In this instance, and believing he would remain a part of the consortium, Gerner agreed.
Gerner claims he was again contacted by Edwards on May 4 and assured the consortium was continuing its due diligence and would update him in due course.
He claims they never did.
Instead, the consortium purchased the property on May 25 – but via a different company known as Continental Hotel Investments that was not a party to the formal agreement with Gerner.
As a result, Gerner was not included in the development, he claims in court documents.
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