The great real estate heist: how Fairfax lost $10 million

Two weeks ago, a cabal of high profile real estate agents stole $20 million from the vaults of an ASX-listed company in a secret raid.

But this wasn’t your usual fraud or bank job. It occurred deep inside Melbourne’s leafy Eastern suburbs. The main players were pillars of the city’s blue chip property establishment. And the modus operandi, while unorthodox, was highly effective. The thieves were loyal customers of their target, and they had been tipping millions into its coffers for years.

Victoria Police won’t be investigating because the heist was perfectly legal?—?overnight, four of Melbourne’s biggest real estate agents transformed themselves from supplicants into rivals, setting up their own masthead to hijack the profits of Fairfax’s suburban real estate cash cow The Melbourne Weekly and its suite of sister publications.

The new as-yet unnamed venture is the brainchild of former Age property editor and marketing director Antony Catalano. Its chairman is Melbourne property doyen Gerald Delany, whose agency Kay & Burton has a 15.6% founding stake in the publication’s holding company with three other big-time real estate agencies Jellis Craig, Marshall White and Bennison Mackinnon. Another 20 agents, including Hocking Stuart, Fletchers, RT Edgar, Noel Jones, Buxtons, Woodards and TBM have also signed up, leaving Fairfax’s bulging 300-page weekly and its satellites, which churn out annual profits of between $12 and $18 million, effectively without a revenue stream.

Since the first details of the venture broke, Melbourne’s media watchers have been wondering how Fairfax could have allowed a former employee to remove $10 million in earnings from his old firm. For 10 years Fairfax had paid Catalano to build the intimate relationships that have now crumbled around them. Indeed, Catalano’s August 2008 departure from Fairfax might be considered the most expensive redundancy in the company’s long and checkered history.

The defection almost certainly spells the end of The Melbourne Weekly’s stellar profits, and quite possibly the beginning of large losses. Substantial layoffs are expected and the size of the revenue loss is big enough to raise questions about whether Fairfax should have disclosed the news to the stock exchange.

And it could get worse. Talk persists that the new venture could end up forging a deal with either the Herald Sun or The Australian to transfer Fairfax’s largest Melbourne-based revenue stream?—? real estate advertising in the Saturday Age —?across to News Limited.

Crikey understands that this week, with the full extent of the rout becoming clear, Fairfax executives began desperately calling agents to shower gifts and inducements on The Melbourne Weekly’s last remaining real estate client, a mission that apparently failed when the agent realised that if he continued to advertise he would be the only significant advertiser left.

During his days on The Age, Antony Catalano was known as “The Cat”. Quick to chase down leads, and allegedly speed-read documents on someone else’s desk if the situation demanded it, the ex-copy boy was well connected and ahead of his peers in securing scoops.

Catalano started at The Sun in 1985, rapidly working his way up to police reporter and covering the Hoddle Street massacre on his first day on the job in August 1987. After defecting to The Age in 1990, he embarrassed his old bosses when he broke news of a new chapter in the notorious Mr Cruel case, delivering copies of his scoop the next day to his former colleagues at the Herald Sun.

Catalano moved to The Age’s health and property rounds and briefly edited the daily gossip column Metropolitan before returning to property in 1998 where he had developed an enviable contact book. In 2001, then-Age editor-in-chief Greg Hywood plucked his protégé from the news desk to the commercial side of the business, where he leveraged his connections to stitch up a raft of commercial deals as classified advertising director.

In 2003, Catalano was tapped to establish the short-lived Melbourne Property Guide, to compete with The Melbourne Weekly, then owned by Text Media whose shareholders included current Crikey publishers Diana Gribble and Eric Beecher. Catalano was busy poaching Beecher’s clients, at one point signing $9 million worth of business on the eve of the 2003 Grand Final. Two days later, he received a call from Fairfax CEO Fred Hilmer telling him to hold off because Fairfax was about to buy The Melbourne Weekly from Text for $67 million.

But the culture inside Fairfax was changing. The new focus was entrenched by Rural Press’s $3.6 billion takeover of Fairfax in April 2007, widely seen as a Harbour-city annexation of The Age’s staunchly Melbourne culture.

Catalano, who had never left Melbourne, was increasingly viewed as someone that had the potential to show up his bosses. A year later, he was given his marching orders.

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Out of a job, Catalano headed to Byron Bay with his wife and young family. And when his non-compete clause with Fairfax expired in February last year, he shot into action, secretly meeting with leading agents and signing confidentiality deeds to not reveal the dealings to Fairfax.

Catalano, who has been reluctant to talk about his new venture, was confronted with a tense 12 months as lawyers and consultants poured over business plans and legal structures which threatened to derail the project.

Indeed, it wasn’t until the departure last September of Fairfax Chairman Ron Walker, who had long-standing relationships with Melbourne’s upscale estate agents, that the momentum finally took hold.

A second fillip came after The Age withdrew its 10% advertising agency rebate last October, a “management fee” to agents from Fairfax on each piece of advertising that ran in its publication. Effectively, the agencies had to pass on a 10% increase to the estate agents who in turn passed it on to their vendors.

The final tipping point arrived after Fairfax took over the distribution of The Melbourne Weekly, transferring it to the company Firmax, in which it holds a 50% stake. During November and December, agents began to contact The Age to complain bitterly that they hadn’t seen copies for weeks on end. Crucially, many of the vendors, who had paid for the ads, weren’t getting the publication either.

Catalano remained elusive when contacted by Crikey, saying that the new venture was about “finding a job for myself” and to “feed his kids” following his dumping by Fairfax. He says he will produce an “agenda-setting” publication that “celebrates Melbourne”, with a solid team of journalists and a full slate of real estate advertisers.

“It’s not personal. The only things I know are journalism, publishing and the real estate industry and so I combine those skills.”

“I want to create a product which features great journalism, which give readers something that I think is missing from the market.”

Real Estate Institute of Victoria chief Enzo Raimondo told Crikey that he had first “heard whispers” that Catalano was about to pounce “five or six months ago”.

He agreed that Fairfax had lost touch with its customers.

“There has been a perception, as in any monopoly, that people tend to not trust you as much… there’s a little arrogance, little less dialogue ,without much consultation and there’s been a number of successive issues including price and distribution.”

“It was a significant revenue stream for them, and if [Catalano’s venture] goes the way that that plans to go, no doubt that it will have a major impact.”

Raimondo, who has had his differences in the past with Catalano, is set to team up with the new publication by placing ads for his institute’s website realestateview.com.au in its pages.

“Antony knew how to work the game in terms of keeping big clients close to him, there’s been little differences that people in the know that they’ve been treated by Fairfax… he has strong relationships with a lot of agents, who hold him in high regard. This is a bold move against a firmly entrenched publisher, if it works, good luck to him.”

Still, Raimondo sounds a note of caution when it comes to print advertising, noting that the vast majority of connections between buyers and sellers are now made online.

“You’d have to question the value of print, considering a significant proportion of advertising, probably around 60-70%, is now online.”

Cynics might suggest that the print market pursued by Catalano is there simply for real estate agents to extract money from vendors to promote the agents’ brands, especially in a red hot property market.

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The reaction inside the Fairfax camp to Catalano’s venture has been frantic. Three Fridays ago, The Age itself broke the news of the new challenger in its business pages. In the story by property reporter Marika Dobbin, the company’s Community Newspapers chief Colin Moss took the heat – and bizarrely accused the agents of taking the profits for themselves.

“They have expressed concerns about our distribution, but I think that is just a smokescreen,” Moss was quoted as saying in the Age story. “The Melbourne Weekly will continue to survive but it will obviously be severely impacted if this goes ahead.”

But even as The Age was reporting its own crisis, Catalano was snapping up the next group of major advertisers. One agent told Crikey that when Catalano arrived to see him in early March, “he pulled out a bundle of advertising contracts that added up to more than $15 million – at that point we didn’t have a lot of choice, the horse had bolted and we had to go with it.”

Ironically, after The Age reported the story on March 13, more agents clambered to get on board the new vehicle.

A $20 million real estate horse had bolted and some of the most pragmatic people in a highly competitive business know which nag they have to ride.

This article first appeared on Crikey.