Investors who poured money into a scheme used to fund development of the failed Nido homeware store in West Auckland have been asked if they are willing to commit more funds in order to retain ownership of the building.
This comes as fresh concerns are raised about the original investment scheme that saw retail investors contribute around half of the $62 million raised for the project.
The Nido store was built on land paid for with $30m raised by Maat Consulting through a proportional share ownership scheme and $25m of debt from Pearlfisher Capital, a non-bank lender half owned by investment bank Jarden.
Another $7.5m came from the vendor of the property and ultimate tenant – Nido founder Vinod Kumar.
Investors were offered shares in a company called Central Park Property Investment with returns forecast at 8.5 per cent.
However, this was thrown into uncertainty when the building company that constructed the Nido store went into liquidation, followed by the receivership of Magsons Hardware which operated the homeware store.
Central Park Property itself is not in receivership or liquidation but it does get rental income from Nido to pay investors.
The property is now up for mortgagee sale, raising questions about how the investment scheme can continue to pay its investors, including retired farmers from the New Plymouth and Hawera regions, two of whom put in $1m each.
The Herald can now reveal investors were sounded out by Maat Consulting in early March on whether they would be prepared to invest more money in order to retain control of the building.
On March 12, Maat wrote back saying 131 investors owning 52 per cent of Central Park Property Investment were "willing to commit" to paying more money into the scheme. Maat said $7.25m was required.
Maat director Neil Tuffin last week told the Herald the situation was fluid and no decisions had been made. But any new investment would be conducted in line with the Financial Markets Conduct Act.
Tenders for the 3ha site, including 27,000 sq m building, close on Wednesday, April 14.
"The over-riding sentiment from investors is that they want to hold on to the building," Tuffin said.
"Seventy-five per cent of investors agree not to sell it so we are looking to come up with a way of keeping it. It's a quality building and investors realise over a period of time it will be a good investment."
However, some investors remain concerned.
"Had I known or had it been made very clear that banks would not lend [on the property development], then I wouldn't have invested," one worried investor told the Herald.
Magsons Hardware receivers McGrathNicol said in February they had failed to find a buyer for the Nido business, despite approaching more than 50 parties.
Investment advisor Murray Weatherston of Financial Focus said buying into such a property scheme was a "buyer beware" situation but he was confident the property could be sold to recoup some funds.
A potential buyer could carve out the ex-Nido store into five bulk-format style tenancies and re-purpose it, he said. That might not recoup the $62m but it could recover perhaps $40m, meaning those with securities over the company were repaid.
Critics, including rival property syndicators, questioned the appropriateness of the investment scheme.
Mark Francis, managing director of NZX-listed Asset Plus and Augusta Capital, said investors deserved a much higher level of protection. He complained that the law did not regulate managed investment schemes like the Nido property offer like it does syndicators such as Augusta.
"Joe Public retail investor doesn't know the difference between a managed investment scheme and a company share offer and nor should they be expected to understand the subtle difference which according to the act, means that one offer has to be offered by a licenced manager like Augusta, and one can be offered by literally anyone with no expertise, so long as they think they are representing it fairly," Francis said.
"Mum and Dad investors see an offer to invest in a property and the yield they will get from it. They sadly don't always realise how important the quality of the manager behind the offer is.
"If Maat had been required to be licensed the chances of the Nido offer making it anywhere near retail investors would have been slim to none," he said.
Oyster Property Group chief executive Mark Schiele said Oyster had looked at buying the Nido land and buildings but had doubts about how successful the retailer would be, given it was untried. The subsequent failure and receivership of the retailer and its imminent closure was unfortunate, he said.
"The operator here has never been licensed and provides investment vehicles in a way where they don't have to be licensed. Such offers look like Augusta or Oyster offers but how do they then get around not being licensed? That's one question for the FMA."
A Financial Markets Authority spokesman said the Nido offer already had to meet certain standards including disclosing the nature of risks involved.
New Zealand's financial markets regulatory framework allowed issuers to launch equity offers or MIS (managed investment schemes) to raise capital for single, or one-off investments like the Nido property offer.
"Equity issuers, including Maat Group, have obligations under the Companies Act to protect the company's and shareholders' interests such as directors' duties. Equity investors can use their rights to set the strategic direction of the company and hold management to account.
"MIS managers must be licensed by the authority in order to offer managed investment products to retail investors, meaning they must meet certain minimum standards," the spokesman said.
The authority had previously clarified that certain property investment companies will be designated as MIS if shareholders in the company have reduced powers and the manager of the investment property is entrenched, where shares are offered in an investment company and their key service provider - i.e. asset manager, investment manager, or investment adviser - is entrenched to such a degree that it is impossible or impractical to terminate that service provider's arrangements, those shares are in economic substance managed investment products in a MIS, the spokesman said.
"If the FMA has concerns, or becomes aware of concerns regarding a property investment offer, including the way it is structured, we may raise this with the issuer directly or take the appropriate regulatory action. In the past we have occasionally engaged with issuers regarding this issue, before offers have gone to market," he said.
The authority had been monitoring property syndicates as a high-risk sector.
"Investors should be aware that property syndicates typically offer higher returns but can be riskier than other forms of property investment, regardless of their legal structure. Returns are not guaranteed, can vary and may be different to the rate advertised by the property syndicate depending on a variety of factors. Investors should carefully read the offer information," the spokesman said.
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