In over six decades involving billions of dollars of commercial property investment in over 50 cities and many countries, I’ve sometimes encountered some pretty dumb propositions. But never ever have I seen a commercial property investment proposition more disgracefully ignorant than one currently being flogged to the New Zealand public. Such stupidity is tolerable and sometimes laughable when people do things and they alone pay the price for their blundering. But as this case involves the public and is so blatantly dumb, it needs to be called out.
Just before Christmas a half page Herald advertisement appeared which staggered me. Targeting investors it had the stock illustration of an aging couple in joyous retirement activity, the standard advertising format for such propositions which I sent up in my novella “Risk and Reward”.
To avoid the trouble and cost of a prospectus the promoters are seeking what they described as wholesale investors, a not uncommon practice as a single building communal ownership investment is not a hugely complex proposition.
When I saw this advertisement much mirth ensued and it was bandied about in the pre-Christmas socialising in the capital’s commercial real estate circles.
As it was so bloody stupid I assumed it would flop and we’d hear no more but bugger me if the promoters have given it another run, thus this response.
The promoters, Matesinvest.co.nz seeks to first raise some cash and only then seek an investment property. That was one reason I laughed it off when the advert first appeared as I assumed no-one would be dumb enough to send money to invest in an unknown proposition.
But get this. Their major sales pitch is that they’re not going to gear the property and leverage its return with a mortgage.
That is staggeringly ignorant. Whether an investor has $50,000 or $50billion, any permanent investment and specially property, if ungeared, ultimately in real terms will lose value of greater importance, gearing hugely lifts the investor’s return.
Their advertisement presents this staggeringly stupid decision as the major feature with the heading, “What’s Invested In New Zealand Stays In New Zealand.”
They outline three nonsensical benefits of this.
- “Investment returns are not affected by interest rate fluctuations associated with bank finance”.
What garbage. Have they never heard of fixed rate mortgages?
2. “Our cash buyer advantage gives us greater flexibility at time of acquisition”.
I’m reasonably literate but I have no idea what that means. The only possible interpretation is they believe competing buyers are offering bags of apples or some other non-cash part payment. If they’re buying in part with mortgage finance, they’re still paying cash.
3. And finally, the Daddy of them all, specifically, “All returns will stay in NZ (No off-shore finance or investors).”
For that to be true presumably they intend to contract their hypothetical investors never to spend their rental dividends on overseas travel, new cars, the Warehouse’s offerings and so on, namely any overseas sourced products. That statement reveals the economic literacy of a seriously retarded 5 year old.
Fascinated, I enquired re the promoters whereupon all became clear. It turned out to be a small Auckland valuation firm.
Valuers are price historians who simply record historic prices. I’ve known hundreds and have yet to encounter any who understand commercial property.
For God’s sake, stay well clear of this. It raises a questions I’ve often pondered, namely should there be a required qualification to solicit investment money from the public? Qualifications are required in most activities but anyone is free to flog investments, regardless of, as in this case, plainly having no knowledge of the field their proposition is in. We see the results daily with the seemingly endless financial fiascos as a result, usually with mum and dad naïve victims.
Good on you Sir Bob for explaining this advert which may be confusing to a retired couple.
Being a transaction based business, it wont be easy being a valuer these days…
The widely fluctuating mortgage finance costs have seen to that, and yet again engineered a boom bust cycle…
In the banking circles, don’t they say heads I win, tails you lose.
People will be burnt by this cycle and guaranteed be looking for a scape goat, with the poor old valuer a likely target…
One suspects this promoter is attempting to develop a more consistent cashflow than his current business, which has to be admired in these times. And who knows, the point of difference might just make this promotion fly…not for me however…
much like currency, the prettier the presentation the less the value. It’s the go to image for attracting the naive.