Investors to miss out on Mascot rescue plan

In the quantum of misery that is the Mascot Towers tragedy, it’s hard to tell who has suffered most. 

Is it the elderly couple who should be putting up their feet in an apartment worth an estimated $2.4 million but are having to live with their daughter? If more than 75 per cent of their neighbours agree to the NSW government’s rescue plan, they will have to look for a new home with only about $400,000 to spend.

Is it the families who have endured nearly five years of living in rented accommodation, albeit assisted by a rental subsidy that is now guaranteed to end in June.

Is it the people whose loved ones suffered extreme psychological distress , leading to suicide in a couple of cases, during the years of waiting as their chances of moving back in crumbled like the building they were forced to evacuate?

That’s the human cost, but if you’re judging loss only by the financial impact, then it’s investors who have taken the biggest hit. They will get nothing from the deal that’s currently on the table.

And Building Commissioner David Chandler has little solace for the investors who have received only levies bills and zero rent for the past few years.

“Well, investor, we just had to say I’m sorry, but [it is] no different to buying shares,” he said on the Flat Chat Wrap podcast last week.

“The investors get negative gearing, and investors also get capital gains tax loss. So investors have got the prospect of off-setting the losses of their investment in Mascot Towers against future investments, or current investments that they’re making.

“So it would be tantamount to double-dipping, if you actually paid investors in the same way as owner-occupiers.

“Owner-occupiers put their savings on the line; investors put their investment strategy on the line. And so investors have never been included in this group, because while there are a number of investors who will be sellers, it makes economic sense for them just to crystallise their debt and move on.”

The Mascot Towers owners have been divided into two notional groups – “Stayers” and “Leavers”. The Leavers will have their outstanding debts cleared when a consortium buys a super-majority of units in the building – allowing it to do pretty much whatever it wants.

The money from the consortium will pay off strata debts with lenders receiving 60 cents in the dollar plus a top-up from the state government.  The Leavers will then get a portion of the balance from the sale based on their unit entitlements. 

Any Stayers will have to continue to service their debts and deal with whatever plans the consortium has to remediate the building. Commissioner Chandler thinks the majority of investors will join the 75 per cent of owners required to accept the deal for it to go through.

“They don’t want to increase their debt and stay with the building,” he said. “So there will be a significant number of investors who are Leavers as well, but there’s nothing in terms of a support strategy for them.”

If nothing else, the Mascot rescue plan – provided it gets the requisite support from owners – will give investors certainty and they’ll be able to crank up their negative gearing with real figures, rather than hypothetical numbers.  It’s not a great solution, but it is a solution.

And when you think about it, this consortium offering to buy the majority of units is presumably not doing it as a charitable act. There must be money to be made – maybe Mascot Leavers should find out who’s in the consortium and invest in them.

This article previously appeared in the Australian Financial Review.