Augusta Funds Management says its property syndicate for Tauranga’s Fraser Cove Countdown supermarket was “significantly” oversubscribed with NZ$9.15 million raised from investors.
Augusta, which also manages the sharemarket listed Kermadec Property Fund and whose managing director is Mark Francis, was offering 183 individual proportionate title shares in the supermarket at NZ$50,000 each.
Bayleys Real Estate sales consultant Mike Houlker, who managed the marketing of the investment on behalf of offeror and property manager Augusta, said it investors from Northland to Otago and as far afield as Hong Kong, had been attracted to the syndicate.
“Unfortunately, we’ve also ended up with a lot of disappointed investors who we’ve had to return cheques to and we’ve continued to receive enquiry well after the offering has sold out,” Houlker said.
“The market for this type of investment product, provided all the fundamentals of a quality building, good location and particularly a strong tenant covenant stack up, seems to be gathering even more momentum,” Houlker added.
Augusta is acquiring the supermarket for NZ$15.58 million, including 45% or about NZ$6.4 million of bank loans, from the developer of the Fraser Cove centre, New Zealand Retail Property Group. The balance of the deal, about NZ$9.15 million, will be funded through investors’ equity. For this investors' are being offered an initial projected annual income return of 9% per annum.
Augusta says there are two 15 year leases from March 2009 over the 5,112 square metre Countdown property to General Distributors Limited, which is a subsidiary of Progressive Enterprises Limited.
Francis, whose father Peter Francis was managing director of 1980s corporate casualty Chase Corporation and is a director and shareholder of Geneva Finance, said supermarket properties offered the longest leases currently available in the market.
The promoters of property syndicates aren't required to register offer documents meaning it's hard to accurately determine how big the property syndication market is. However, over the last decade some estimates suggest property syndicates have raised up to NZ$2 billion from investors. Another property syndicate promoter and manager, Timaru-based Commercial Investment Properties, is currently trying to raise NZ$8 million through a syndicate for a Bunnings Warehouse in Whangarei.
Meanwhile, the Securities Commissionwarned investors' last year that property syndicates could be risky.
“These schemes work differently to other kinds of investments, and their risks need to be understood,” the commission said.
The regulator noted someone investing in a property syndicate might be agreeing to share its debts and liabilities, jointly or severally.
“This means that if the syndicate can’t pay its debts or fund repairs, investors may have to make up the shortfall. In fact, each investor may be liable for the whole amount. You may end up owing money to the syndicate.”
“Liability varies from scheme to scheme, so we strongly recommend investors clarify the extent of their liability before investing.”
The commission also said that given the lack of a formal market, it might be difficult to on-sell your interest in a property syndicate, particularly if the scheme wasn’t performing well, meaning investors' should find out how the syndicate will eventually be wound up.
Augusta says it provides a secondary market for all of its syndications, whereby investors can buy and sell units in its syndicates on an on-going basis, giving them "some degree" of liquidity within their investments. Augusta's website says the firm manages more than NZ$200 million of New Zealand commercial property.
From December the Securities Commission says all firms running property syndicates will be deemed to be providing a financial service and must register on the Financial Service Provider register.
6 Comments
Are you serious? This is identical to the slice-and-dice routine perfected by the CDO merchants. Instead of the mortgage, slice-and-dice the property itself. It's the same model used by Macquarie Bank, unloading high-priced assets into the hands of the unsuspecting and then gouging huge management fees. Of most interest would be who the vendor is. Is it a large Insurance Company or Superannuation Fund unloading a large portfolio of property assets piecemeal?
Well there is no doubt that schemes like this are risky - after all its hardly a diversified portfolio and the investors have to really understand the agreements they are signing up to...
I also personally worry about investment deals that are sold by real estate agents....
Still, fools and money 'eh... they just can't seem to leave each other quick enough!
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