Tauranga-based property syndicator Property Managers is selling down unsold investor interests in a syndicate that owns an Auckland office building, more than two years after the syndicate was first offered to the public.
Property Managers set up the syndicate as a proportionate ownership scheme to acquire the office building on the corner of Dominion and View Roads in Mt Eden, which had Bank of Baroda, Connect NZ and Finance Now as its main tenants.
The scheme offered investors 551 proportionate ownership interests in the property at $25,000 each and the property was acquired for $13.158 million in February 2012.
But it appears that not all of the units were sold down to outside investors.
A substantial number, it is not known exactly how many, continued to be held by PMLU (Dominion Rd) Ltd, which underwrote the syndication offer.
Those interests are now being marketed for sale to investors by Colliers International.
PMLU is a private company owned by interests associated with Denis McMahon, Property Managers' executive director and majority shareholder (through a trust arrangement).
It appears to own a substantial number of interests in the scheme, suggesting less than half the interests in the syndicate were sold down to the public at the time they were originally offered.
The most recent set of scheme's accounts posted on the Companies Office website are for the year to March 2013.
BNZ owed $7.35 million
One of the intriguing aspects of those accounts is that they showed that the syndicate itself had no debt, even though BNZ holds a mortgage over the Dominion Rd property.
That apparent contradiction was explained in the related party dealings section of the accounts, which showed that the BNZ mortgage was a PMLU debt, with the building owned by the syndicate given as security.
The accounts showed that as at March 31 last year, PMLU owed BNZ $7.35 million on the mortgage.
The size of the mortgage suggested that a large proportion of the units in the syndicate acquired by PMLU as part of its underwrite function were debt funded, using the building which all the investors own, as security.
That's an unusual arrangement, because the benefit of the BNZ loan would apply to PMLU itself, presumably to fund its acquisition of interests in the syndicate as part of the underwrite arrangement, while the risk associated with the mortgage over the building, would be shared equally by all investors in the scheme, because the mortgage ranked ahead of investors' interests in terms of security.
The $7.35 million mortgage would be enough to have funded PMLU's acquisition of 294 investor interests in the syndicate, which would be 53% of the total interests originally offered, which would mean less than half were sold down to the public when the scheme originally went to market.
So there may still be plenty left for Colliers to sell down now.
The scheme is forecasting cash returns of 8% a year, which is still more than you can get from leaving your money in the bank, so that should appeal to some investors.
However there are a couple of things investors should pay particular attention to when the latest set of accounts become available.
The 2013 accounts disclosed that there had been a problem with one of the tenants in the building, which had affected the scheme's cash flow.
The property had six tenants and the accounts disclosed that one of these owed $111,320 at the end of March last year and had been issued with a Property Law Act notice.
However the accounts also stated that the amount may have been able to be recovered from the building's vendor under the terms of an arrangement entered into at the time the property was sold.
The accounts also showed that the syndicate had equity of $12,942,762 at the end of March last year, which worked out at $23,490 for each investor interest, a 6.6% discount to their $25,000 asking price.
It will be be interesting to see how those numbers may have changed when the accounts for the year to March 2014 are released.
Denis McMahon did not return calls or reply to written questions put to him by interest.co.nz during the preparation of this article.