Significant $30m loss in Nido syndicate

10 November 2021
Significant $30m loss in Nido syndicate

Significant $30m loss in Nido syndicate shows mortgage lending a less risky option for investors.

One of New Zealand’s leading non-bank mortgage lenders says the collapse and mortgagee sale of large-scale Auckland homeware store Nido, illustrates the caution commercial property investors need to take when putting their money into property syndicates.

Earlier this week it was revealed that the return for investors in the syndicate that purchased the property will be only 14.1 per cent of their original capital invested, meaning they lost $30m.

Alpha First Mortgage Investments Director Scott Massey, says the substantial loss showed investors who choose to put their money directly into commercial property, whether through a syndicate or on their own, also take 100 percent of the risk.

The Nido development syndicated by Maat Group, formed Central Park Property Investment to own the property. When the Nido business which tenanted the property closed down in March this year, the lender who had a first mortgage called a mortgagee sale to recover its short-term financing. However, the building’s sale price came in well short of the total $62 million paid for the property, leaving investors in Central Park Property Investment out of pocket by $30m after all costs associated with the collapse and sale.

“The fact that the lender will get paid before the building owners shows how in this type of situation there is more risk to investors in the property ownership rather than the mortgage lenders,” says Mr Massey.

“It highlights that if you invest in commercial property whether by syndication or by yourself you take 100 percent of the risk on the value of the property.”

Mr Massey said in commercial property ownership, the real risk was generally in the last 20 to 30 percent of the value of the property.

Mortgage lenders like Alpha First, only lent to 50 or sometimes a maximum of 60 percent of the commercial property’s value, meaning there was far less risk for investors choosing to invest their money in lending rather than ownership.

“Syndicates have done a very good job of providing an avenue for people to invest in commercial property, long term the value will probably go up, but it is always dependent on the tenant being able to pay the rent. Generally a vacant building’s value is less than when it is well-tenanted.”

Mr Massey said if investors were looking for an alternative option to property syndicates, the returns from mortgage lenders were generally just as good and sometimes better.

“We generally pay around an 8 percent return on our mortgage investments but we’re only lending on a term of around one year and at around 50 per cent of the property value, so there is less total risk to investors.

“Over the hundreds of loans Alpha First Mortgage Investments has completed, not a cent has ever been lost by investors,” said Mr Massey.

Syndicate investors did stand to gain in the capital growth on a property over the long term, which was not available through investing with a mortgage lender, but as investments in mortgages were generally short-term, when the investment was returned new investments could be made, he said.

“When you go into a syndicate you’re also locked into that investment long term and there’s limited opportunity to exit,” said Mr Massey.

“I’m an advocate of property syndication but where the risk is low such as with supermarket operators or fuel companies as tenants, but not when there is clearly risk of the tenant not being able to pay the rent.”