Syndicate investors suffering

THE NEWS keeps getting worse for investors in SPI Capital’s troubled property syndicates, and many investors now face substantial losses.

Investors in SPI’s Hunua syndicate have been particularly badly affected and could lose much of the money invested or might have to stump up with more cash.

SPI set up Hunua in 2006 to acquire a 4.05 hectare industrial park at Papakura on Auckland’s southern fringe. The property also has some vacant land which SPI originally intended to develop.

However, weak demand meant the development did not proceed and the syndicate was forced to significantly write down the value of the land in this year’s accounts.

That meant it breached the loan-to-valuation ratio agreed with its mortgagee, ANZ Bank. SPI had proposed selling off the vacant land to try to shore up Hunua’s balance sheet.

But misery loves company and before that plan could be put into effect, the property’s anchor tenant, Interworld Plastics, struck severe financial difficulties and went into voluntary liquidation.

That caused a further breach of Hunua’s banking covenants and ANZ served formal notice of the breach on the syndicate, a preliminary step to the bank potentially taking control of the property and forcing a sale.

The syndicate’s situation is now grim. The lease to another tenant has recently expired and a third tenant has vacated the premises ahead of its lease expiring in October next year.

Those problems could lead to further writedowns in the property’s valuation, putting its balance sheet under more pressure.

Unsurprisingly, ANZ has become increasingly concerned and, according to SPI, has demanded an immediate reduction in the syndicate’s loanto-valuation ratio from 72 per cent to at last 60 per cent, with a further reduction to 55 per cent some time next year.

SPI has written to investors saying the only way the necessary cash could be raised was for them to stump up another $10,335 each.

Interests in the Hunua syndicate were originally sold for $50,000 each. Its mounting problems mean investors have not received any distributions for the past two years, so the prospect of parting with more cash is an unpalatable one.

There are, however, some rays of hope in the gloom.

Interworld’s liquidators have allowed the company to continue operating with a view to selling it as a going concern. SPI said it has already held discussions with potential buyers about new lease arrangements for the premises.

If that can be arranged and the rest of the vacant space leased to provide a reliable rental income stream, the vacant land and possibly the entire property could be sold off in an orderly fashion.

Sorting out the mess will now fall to Christchurch accounting firm Taurus Group which took over the management of Hunua from SPI last week.

SPI is a private company owned by interests associated with its directors, Murray Alcock and Allister Knight.

Unfortunately, Hunua is only one of several syndicates SPI set up which are now facing financial difficulties. As those problems have intensified, SPI has been passing over management control of more and more its syndicates to Taurus.