Reply: 1.1.1.1.1
From: Waverly Bay
Industry questions Kaye claims
Apr 6
Tina Perinotto
Property seminar spruiker Henry Kaye says investors can earn up to 35 per cent on mezzanine mortgage lending with their capital guaranteed. The industry says they can't.
Mr Kaye has made an impact in the last few years with would-be property millionaires happy to pay up to $20,000 to hear how to get rich on property, using mostly borrowed funds.
Despite media attacks on get-rich-quick schemes, the Melbourne-based Mr Kaye has continued to enjoy up to $6 million for each event that can pack out Sydney's Superdome or the Convention Centre with emotional investment "empowerment" techniques.
His latest seminar offering, which appeared this week in newspaper advertisements, promised to reveal how to invest in mezzanine funding with 100 per cent borrowed funds, and how to guarantee against any loss.
The investments are passive and this makes them "the perfect investment vehicle for retirees and superannuation funds, as well as ordinary 'mum and dad' investors", the advertisements said.
Offered at a giveaway $39, which industry sources say is a common hook to attract targets for more expensive information, the seminars have attracted the attention of the NSW Department of Fair Trading, but they are offered in all major cities except Perth.
"In NSW advertisers must be able to substantiate any claims they make in their advertising or any other promotional material," a Department of Fair Trading spokesman said.
"If there is actuarial evidence that Mr Kaye's methods do not achieve up to 35 per cent return, Fair Trading would welcome that evidence."
Mezzanine finance is a sophisticated product for sophisticated investors. Generally it provides 10 per cent of funding for an investment or development, but the loan is subordinate to the first mortgage which is paid first in the event of bankruptcy.
It was used during the frenzy of the 1980s property boom, but disappeared after the fiasco of the property crash and the huge losses made by ordinary retail investors in high-risk property investments, such as those offered by Estate Mortgage.
Today, mezzanine finance is back, but strictly for institutional or sophisticated investors. At Macquarie Bank, for instance, you need to be an institution or have a spare $500,000 to invest. Investec Australia, soon to launch a fund offering a mezzanine lending product with returns of between 15 per cent and 30 per cent, will offer it only to its merchant banking clients.
Associate director of Investec, Brendan O'Sullivan, said his company is one of the biggest players in the field. Can the loan be capital guaranteed? Mr O'Sullivan has never heard this could be possible.
Is there any way you can secure this through some form of insurance? "Not at all."
Asked where "mums and dads" could find such investments, Mr Kaye told The Australian Financial Review that he "preferred right now not to talk about it". But he said he would tell people how to find the deals for themselves, including the developers if they wanted the higher returns and mortgage funds for the lower returns.
But the Department of Fair Trading has advised: "High capital returns usually are associated with high risk and often the schemes are very complicated so that people cannot properly understand them without consulting a licensed adviser."