Lessons learned from Nido syndicate's $30 million loss

Non-bank lender offers options to commercial property investors

Lessons learned from Nido syndicate's $30 million loss

The Auckland homeware store Nido’s recent collapse and mortgage sale emphasised that commercial property investors have to be cautious when investing in property syndicates, according to Alpha First Mortgage Investments (Alpha First) director Scott Massey.

Non-bank mortgage lender Alpha First recently found that the return for investors in the Nido syndicate was only 14.1% of the original capital invested, which meant the investors lost a whopping $30 million.

The Nido property syndicated by Maat Group formed Central Park Property Investment (Central Park) to own it. When the business closed down in March 2021, the lender who had a first mortgage held a mortgage sale to recover its short-term financing. However, the sale price fell short of the total $62 million paid of the property, leaving Central Park investors out of pocket by $30 million following all costs related to the collapse and sale.

Massey said the loss emphasised that those who invest directly into commercial properties take 100% of the risk, whether through a syndicate or by themselves.

“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, pointing out that the real risk was generally in the last 20% to 30% of the property’s value.

Read more: Colliers delivers the latest on Auckland’s commercial property market

The Nido syndicate’s loss is one of the examples of why Alpha First and other lenders only lend 50% to 60% of a commercial property’s value, so investors would face less risk when choosing to put their money into lending rather than owning.

“Syndicates have done a very good job of providing an avenue for people to invest in commercial property; long term, the value will probably go up, but it is always dependent on the tenant being able to pay the rent. Generally, a vacant building’s value is less than when it is well-tenanted,” Massey said.

If investors were looking for an alternative to property syndicates, returns from mortgage lenders were generally just as good and sometimes better, he added.

“We generally pay around an 8% return on our mortgage investments, but we’re only lending on a term of around one year and at around 50% of the property value, so there is less total risk to investors,” he said. “Over the hundreds of loans Alpha First Mortgage Investments has completed, not a cent has ever been lost by investors.”

The Auckland-based homeware store’s recent issue highlighted that investors have been flocking to the commercial property market in Auckland since June 2021.

Tenants in most commercial leases usually pay outgoings, providing the landlord with a net return more easily comparable with other types of investments, unlike residential tenancies where the landlord usually pays the outgoings and the yield is gross, according to Interest.co.nz.

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