656, a syndicate centred around a commercial building on Auckland's Great South Rd, advanced $1.15 million to SPI Assets, which in turn was on-lent to another related party. Photo / NZME.
656, a syndicate centred around a commercial building on Auckland's Great South Rd, advanced $1.15 million to SPI Assets, which in turn was on-lent to another related party. Photo / NZME.
Backers say related-party loans and mismanagement may have contributed to their financial woes.
Investors in nine property syndicates that have so far lost $25 million say related-party loans and mismanagement may have contributed to their financial woes.
The syndicates were all started by Secure Property Investments, a company directed by Auckland businessmen Murray Alcock and Allister Knight that raised more than $40 million from investors in the 2000s.
These investors bought interests in syndicates that owned and managed commercial properties around the country.
Investors in one, Gloucester Syndicate, got all their money back after the demolition of its earthquake-damaged Christchurch building and a payout from insurers.
A further two, called 66 the Square and Times House, are believed to be paying regular distributions.
Hunua Syndicate, which owns property in the region of the same name, was in breach of its bank convenants and had accumulated losses of $4.7 million, according to the latest financial accounts.
But one investor believed that syndicate had "turned a corner" and said its situation was improving.
Unit holders in some of the others have not been so fortunate.
Those in two that owned New Plymouth buildings suffered total losses of more than $5 million, representing all of their investment.
A syndicate that raised $3.2 million, Jade, is no longer a going concern and accumulated losses of nearly $3 million in the year to March last year.
During the 2014 financial year, accumulated losses across the syndicates topped $25 million.
"It's a sorry saga," said one investor, who spoke to the Herald on the condition of anonymity. Asked about what was behind the syndicates' problems, another investor believed adverse market conditions, high fees, mismanagement by SPI and related-party lending had all played a part.
The syndicates' related-party loans to entities associated with Alcock and Knight was a common gripe among all the investors spoken to by the Herald.
As of March 31 last year, almost $6.1 million of advances and accrued interest owing by these related parties had been fully impaired in the syndicates' accounts.
656, a syndicate centred around a commercial building on Auckland's Great South Rd, advanced $1.15 million to SPI Assets, which in turn was on-lent to another related party, Treble Investments - also directed by Alcock and Knight.
Treble owns the Waitakere District Court building and also received an almost $1 million advance from Gloucester, as well as $730,000 from a syndicate called the SPI Property Fund.
These loans, with accrued interest, have been fully impaired in the syndicates' accounts and may not be repaid, according to financial statements. It is believed the property is grossly over-geared. The group which took over syndicates from SPI in 2013, Taurus, said it was investigating avenues for recovering debt, when asked if liquidation action would be brought against Alcock- and Knight-related companies.
"When we took over, most of the related-party loans were already fully impaired," Taurus director David Kitson said.
"Any recovery of debt and how this is approached is a confidential matter between Taurus and the investors, however all options are being investigated but will only be pursued if there is overall benefit to investors, as has always been the case," Kitson said.
Alcock and Knight have now both agreed with regulators they will not head companies that seek or hold public funds until November 2019.
The undertakings given by the pair follow a probe from the Financial Markets Authority, which said it was likely the men had breached the law.
The directors are also required to repay outstanding subscriptions owed to SPI Property Fund investors and are due to be sentenced next month for not complying with the Financial Reporting Act.
Neither of the pair wanted to comment to the Herald when asked about the syndicates, because there were still live matters before a court.
Syndication is a way for small investors to get into some big name tenancies. Photo / Thinkstock
NZ Herald property editor Anne Gibson: Rewards and risks of syndication
Where to put your money when interest rates are sinking and property is increasingly out of reach?
One way into real estate wheeling and dealing is via a rising number of property syndication schemes, offering enticing returns, around double trading bank cash rates.
Syndication has the twin advantages of being a form of direct property investment but one which also allows small-time investors the opportunity to buy into commercial, industrial or retail property which would be out of most people's reach.
This enables them to get into properties like box retail stores, big-name tenancies and often in prominent locations.
Syndication or proportional ownership is like many alternative investment schemes - great when it's all going well but when it goes wrong, investors can be badly burned.
A manager takes care of the hum-drum day-to-day management and maintenance of the property.
People usually buy units and the number of these on issue depends on the property purchase amount.
Syndication offers a relatively low entry level, sometimes about $50,000. The number of investors is generally determined by the equity required to buy the property divided by the price of each unit offered.
Investors can buy more than one unit in the property. Each unit of the property holds its own title.
Returns are often more than 8 per cent, sometimes above 9 per cent.
Higher risks accompany higher rewards.
Syndication or proportional ownership is like many alternative investment schemes - great when it's all going well but when it goes wrong, investors can be badly burned.
Syndicates have turned out to be extremely illiquid because they usually only own a single building, often with a single tenant. The extremely high returns should act as some sort of gauge to the amount of risk being taken by the investor.
