Management Investment Schemes for Development (Joint Ventures)

Hi All
We have been setting up a lot of these and I thought I would share some details of the 2 types we use. For me these are outstanding projects to be involved in. I get to see from site acquisition through to settlement of the completed project. I also get to work with people who use their skills and sweat equity to put together a much bigger development than they could do on their own.

The largest one of these I have at the moment is approx $16m but one of my clients has just optioned a site that if he can get postive feedback at prelodgement will exceed $50m.

We do have the connections to do a Retail RMIS also but have not had any clients want to go to that level yet, although some of our clients who are using below will progress.

Unregistered Managed Investment Schemes
Structure - Unit Trust with Corporate Trustee plus another entity as manager of development
Maximum Number of Investors 20
Average Establishment Cost - $10K
Average Exit Cost - $5k

Registered Managed Investment Schemes - Wholesale
Structure - Unit Trust With Corporate Trustee (or Stapled Securities if developed assets held and leased out) plus separate entity as manager
Maximum Number of Retail Investors 20
Maximum Investment by Retail Investors $2m every 12 months
Maximum Number of Sophisticated Investors Unlimited
Maximum Investment by Sophisticated Investors Unilimited
Average Establishment Cost $40k first time around, $10k each development thereafter
(plus ongoing wage costs for 2 experienced people for first few years $5-$10k a year each)


Typical Scenario
Manager:
1. secures an option over several adjoining blocks of land.
2. designs development and goes to council for a pre-lodgement meeting seeking support for DA
3. obtains quotes for development costs
4. obtains valuations / sales appraisals

We:
1. establish unit trust with corporate trustee
2. draft unit holders agreement
3. draft expression of interest document

Manager prepares an information memorandum and goes out seeking investors

We:
1. accept $1k expression of interest deposits into trust
2. issue unit holders agreement and trust deed to potential investor
3. approve the investment vehicle the investor will use to hold units in the trust

Manager indicates that sufficient expressions of interest received to proceed

We:
1. Write to investors informing them of contribution date (date by which they must put funds in our trust to cover their unit purchase
2. Write to investors informing them of issue date (date on which we move funds from their trust ledger to the investment vehicle's trust ledger and issue units)

Manager informs us of amount of funds that need to be available during the DA period and expected time for DA approval and settlement of land

We invest balance of funds in a term deposit on trust for the investment structure for the period prior to settlement of the land

Manager gains DA approval and instructs us to exercise option

We
1. exercise option
2. take funds from deposit
3. settle land

Manager begins construction of development

We (not included in fees above but $1,000 - $1,500 per lot )
1. draft cms, body corp documents (if for strata development)
2. prepare disclosure document
3. prepare off the plan contract
4. register first CMS and survey plan at titles and get titles registered
5. conduct conveyance of sales

Manager instructs that all sales are complete, all liabilities are repaid and we can begin exit

We payout investors and wind up the structure (actual process here depends on how returns are structured to investors)

Registered Scheme Difference
We outsource the AFSL licensing details to another solicitor. He is an ex top tier law firm partner who has gone out on his own doing just that. It used to cost over $100,000 through his old firm to set this up. He does it for us at $20-$30k. There is a lot more involved and there needs to be responsible entities, holding entity for the land, 2 experience people to get the wholesale AFSL etc etc. More expensive and time consuming but worthwhile if you need more people in for bigger cash injection or you do more than 2 of the unregistered ones. Once you have done 2 unregistered then ASIC may deem you to be in the business of promoting investment schemes and if you don't have an AFSL you are in trouble.

 

Good to know who I can go to when I encounter this request. Its a complex area and having the precedent experience for compliance cannot be under-estimated.

Plenty of clowns have been smashed by ASIC for unregistered schemes that fail compliance

 

And the repeated one is what gets people into trouble.

a complaint to ASIC and they order you to immediately return the funds for running without a lic. Can be fatal mid development