FMA investigates property syndicates

The Financial Markets Authority (FMA) is investigating SPI Capital, one of the country's largest property syndication companies.

SPI Capital manages a portfolio of commercial properties worth about $135 million, of which about $70m is tied up in half a dozen property syndicates structured as proportionate ownership schemes.

The Sunday Star-Times understands that the FMA's investigation into SPI Capital focuses on whether the company has complied with financial markets regulations and arose from complaints by some investors over the way their syndicates had been managed.

SPI Capital director Murray Alcock attributed the problems to a handful of disgruntled investors which he termed a ginger group.

"I wouldn't say they [the FMA] are conducting an investigation. There's been a ginger group I suppose, that have encouraged people to make complaints, so they've made inquiries to us and asked us to provide information around those things and that's the end of it," he said.

Property syndicates allow investors to pool their funds to buy a commercial property which may be beyond their reach individually.

Such schemes have become increasingly popular with mum and dad investors over the past few years because they can provide returns which are currently much higher than bank deposits.

Some of the larger syndication companies control property portfolios worth hundreds of millions of dollars on behalf of thousands of investors.

However, investing through a syndicate does not remove the risks associated with investing in commercial property and the FMA has recently tightened the regulations around syndicates by requiring new schemes to issue a registered prospectus.

Alcock said most of the complaints related to the Gloucester syndicate which owned the Farmers car park building in Christchurch's central business district. The building was damaged by the February 2011 earthquake and investors had received no income from it since then.

Alcock said the investors had now received their share of the insurance payout on the building and would also receive their share of the proceeds when the land is compulsorily acquired to allow a new convention centre to be built on the site.

Investors would receive about 125 per cent of their original capital investment and had been receiving monthly income cheques equivalent to an annual return of about 10 per cent a year up until the time of the earthquake, Alcock said.

Investors in another SPI syndicate which owns a commercial building at 656 Great South Rd at Penrose in Auckland also face some tough choices.

Alcock said the mortgage over the property was provided by Guardian Trust which wanted the loan repaid so that it could exit the market for that type of business.

But the requirement to repay the loan had come at a time when SPI was trying to negotiate new leases on the property, which made refinancing difficult.

So investors were faced with options including a straightforward refinancing, a redevelopment of the property which might require them to provide more capital, or putting the property up for sale and winding up the syndicate.

Alcock said SPI was not planning on bringing any new syndicates to market but believed the sector had a bright future because of its potential to provide good returns.

"But the weaknesses that come up with syndicates, which we have faced, is where you have a single asset. If that tenancy is running down at a low point in the market, you sort of really get caught out."

Sunday Star Times