Property & Infrastructure Funds Property Syndicates? Your views

Discussion in 'Shares & Funds' started by 7020, 17th Oct, 2017.

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  1. 7020

    7020 Well-Known Member

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    A quick note, in my view a property syndicate can also be known as a Unlisted Property Fund, however I view syndicates as generally being investments were every investor knows, or could get to know, the other investors with relative ease.

    So I have, in the past, managed properties owned by syndicates and have recently been thinking of setting up my own syndicate/s. I know about the ASIC guidelines and also the need in certain cases to apply for an AFSL. I am curious to hear from people that have considered property syndicates in the past and those who have invested into them.

    For context I will limit the investment of syndicates to those that invest in commercial property (think shopping centres, office buildings and large industrial complexes).

    Full disclosure: I currently feel that yields are too low for syndicates to compete with other investments, a recent property I was looking to syndicate was only yielding around 6% (on purchase) with that rising to 8% with gearing. My main goal is not to run a syndicate but invest in them as I really like multiple tenant commercial properties which are currently outside of my own finances.

    So my questions are:

    1. Are syndicates of interest to you?

    2. What aspects of syndicates appeal to you?

    3. What in your view would a syndicate need to offer you to invest, aside from high yields?

    4. What concerns do you have in regards to syndicates?
     
  2. Scott No Mates

    Scott No Mates Well-Known Member

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    1. Not any more
    2. Higher yield than otherwise available (however many are highly geared to generate returns), ability to access properties that would be inaccessible to single investors, reasonably consistent cashflow
    3. Defined exit strategy which ties in with investor's needs rather than opportunistic manager's needs (ie sell when it will benefit the investors the most rather than prematurely divesting to collect generous sales commission), long WALE, quality covenants
    4. Lack of control, high management fees/commissions earned by fund manager
     
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  3. 7020

    7020 Well-Known Member

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    Hi Scott,

    Thanks for your input, the last two points really interest me,

    One thing I personally don't like is the time based exit strategy, in fact my interest is more in a buy and hold type investment. However as we all know there comes a time when investors may wish to exit so a buyback or transfer/sale of units would always be an option.

    Lack of control can exist on a couple of levels in my experience, generally this occurs when people wish to sell and others do not or whether or not to expand/develop the site. Are there other situations where one might want more control other than what I mentioned?

    As for management fees and commissions, I too think that a lot of these charge excessive management fees, one example is where they charge based off GAUM (Gross assets under management) which in my view just leads to dangerously high gearing. I personally feel a % of rent is better but that is what I am used too. I would love to hear what you would view as a "fair" management fee.

    Regards
    ComPropAgent
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    @ComPropAgent - IIRC, syndicates have a legislated life of 7 years and must be sold unless all/% members agree to extend the life of the syndicate - this puts an unrealistic timeframe on the investment - is 7 years adequately length for a long term hold?

    Lack of a market for unlisted property trusts is always an issue - usually sold well below NTA. Each parcel is generally offered to other syndicate members.

    As for the % which should go to management fees - no hard and fast rule as it is the fund manager who wants to get their share then there are always other layers (usually vertically integrated to screw the maximum return for the manager).
     
  5. 7020

    7020 Well-Known Member

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    So for a "participating property syndicate" the life is limited to 12 years unless you get all investors to sign off to extend. For what ASIC call a "Small property syndicate" there is no such timeline.