Investors in the Pastoral House (pictured) fund were getting monthly payments from Oyster but these stopped from October.
Investors in the Pastoral House (pictured) fund were getting monthly payments from Oyster but these stopped from October.
Property devaluations pushed a major property syndicate into negative territory, from a $19.4 million profit into a $22.5m loss, when $13.9m of gains on real estate turned into $28.7m paper or unrealised losses.
And investors in the Pastoral House fund, which owns a Wellington office block, got nopayments from October.
Nor can they withdraw their original investment, which for one couple was initially $1 million.
Annual accounts for the giant Oyster Direct Property Fund, which owns $1.1b of properties, show it made a net after-tax profit of $19.3m in the year to March 31, 2022.
Even though rental income from tenants rose from $3.7m to $5.4m and total revenue was up from $11m to $13.4m, interest rate costs doubled from $1.04m to $2.8m.
Oyster Group chief executive Mark Schiele acknowledged pressure in the 2023 annual report.
“Globally, we are experiencing central banks tightening monetary policy at an exceptional pace and clearly in the short-term, rental growth has not had the ability to keep pace with rising interest rates,” Schiele wrote.
“This dynamic is placing continued pressure on valuations and driving higher borrowing costs in the commercial property sector, ultimately impacting current investment returns.”
Oyster suspended withdrawals last March “to ensure the fund retains sufficient working capital to meet its needs”, Schiele wrote.
The fund holds proportionate ownership of many properties, including Greenlane offices at the Millennium Centre, Ponsonby’s Cider Building, Wellington’s Pastoral House, Mitre 10 Mega Albany and Freedom stores in one big-box development on Oteha Valley Rd. It has several other buildings and schemes in this fund.
Operating profit rose from $6.4m to $9.2m but the business lost $138,000 selling a property.
The fund’s strategy for the year to March 31, 2024 was to sell properties where and when it could, Schiele wrote, referring to “strategic divestments where optimal total returns can be realised under current market conditions”.
Sharp decline lately: units in the Oyster Direct Property Fund. Image/ Oyster Group
That means although the market for commercial property sales is hard, Oyster Management - which runs the fund - will try to get as much for buildings as it can.
It already sold 107 Harris Rd, East Tāmaki for just over $10m and wants to sell two big Wellington properties in Newlands to recover money.
No monthly returns for Pastoral House investors
An Auckland couple who initially invested $1m into Wellington’s Pastoral House Proportionate Ownership Scheme got no monthly payments since October, nor can they withdraw their money.
“I’m really cranky,” said the Auckland woman in her early 60s, who with her husband sold some units in 2021 and cut the $1m to $750,000.
“We were stupid to put so much in there,” she said, telling how they had sold a large asset and rejected bank deposits that were paying so little at the time.
The couple bought in because the scheme was highly recommended. They invested in the fund, which owns a prominent Wellington office building between The Terrace and Lambton Quay.
They were drawn to the block because it was majority-leased to the Ministry of Business, Innovation and Employment.
The offer came to market in May 2020, seeking $50,000 minimum amounts.
Oyster is a "leading New Zealand commercial real estate property and fund manager".
“Oyster has suspended all monthly payments on that fund for over six months now with no plan for remedying this situation soon,” the woman said, asking she not be named.
Oyster wrote to her saying: “We are actively evaluating three options for the scheme’s future, in light of current operating conditions: an extended period of cessation of distributions, an additional equity raise, the sale of Pastoral House”.
Oyster told how it was also in “negotiations with Kiwibank for additional banking covenant headroom and are awaiting 31 March, 2024 valuations as part of this process”.
She did not expect to have any problems but complained at the fund’s AGM late last year.
Payments were originally 6 per cent a month, yielding the couple $5000/month, but last May dropped to 2 per cent - then ceased.
A Financial Markets Authority spokesman said it did notcomment on whether it had received complaints or was investigating individual entities.
“Property is often considered a long-term investment. Investments can be illiquid and therefore not easy to cash out. Investors can find out more information on property syndicates and investments and their risks on our website,” he said.
Anne Gibson has been the Herald’s property editor for 24 years, has won many awards, written books and covered property extensively here and overseas.
