Warning follows recent collapse in Auckland
Non-bank mortgage lender Alpha First Mortgage Investments has issued a warning on high-risk investments following the recent collapse and mortgage sale of large-scale Auckland homeware store Nido.
The Nido development, syndicated by Maat Group, formed Central Park Property Investment to own the property. Mortgage investor Pearlfisher, partly owned by Jarden, loaned $25 million secured by a mortgage.
However, when the Nido business that tenanted the property closed down in March 2021, the lender called a mortgagee sale to recover its short-term financing. However, its conditional sale for $46.3 million came in well short of the total $62 million paid for the property – leaving the investors of Central Park Property Investment out of pocket.
Alpha First Mortgage Investments director Scott Massey said the mortgage sale highlighted that investors who choose to invest directly into a commercial property, whether through a syndicate or on their own, also take 100% of the risk, especially regarding new developments.
“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,” Massey said.
“It highlights if you invest in commercial property, whether by syndication or by yourself, you take 100% of the risk on the value of the property.”
In owning commercial property, the real risk was generally in the last 20% to 30% of the property’s value. However, investing money in lending rather than ownership was far less risky for investors – with mortgage lenders only lending 50% or 60% of the commercial property’s value, Massey said.
“Syndicates have done a very good job of providing an avenue for people to invest in commercial property, long term the value will always go up, but it is always dependent on the tenant being able to pay the rent,” Massey added.
If investors are looking for an alternative option to property syndicates, Massey claimed that the returns from mortgage lenders were “just as good and sometimes better.”
“We generally achieve around an 8% return on our mortgage investments, but we’re only lending on a short term of around one year and at 50% to 60% of the property value, so there is less total risk to investors,” Massey said.
“When you go into a syndicate, you’re also locked into that investment long term, and there’s limited opportunity to exit.”