November 27, 2018 - Peak Equities
Category : Blog
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In today’s competitive property market, with prime commercial assets priced out of the reach of many investors, participation in a Commercial Property Syndicate has presented as an increasingly popular mode of investment.
Syndicated investment is essentially passive in nature. The responsibility for identifying and negotiating the purchase of suitable properties rests with the Syndicate Manager, who undertakes an exhaustive ‘Due Diligence’ investigation of the assets prior to committing to a purchase.
The Manager also arranges for any bank financing and negotiates the terms of the purchase contract and any relevant leases. Property Syndicates are commonly structured as Unit Trusts, with individual investors being allotted Units in the proportion that their investment bears to the total subscribed capital of the Trust.
Peak Equities Pty Ltd has emerged as a significant participant in the Property Trust industry. Established some 6 years ago by the Tom and David Borsky father-and-son team, the company currently administers commercial properties valued at more than $220 million. Investors receive monthly cash distributions ranging from 8.0 % to 10.4% per annum. Peak became a trusted name for commercial real estate investments.
Managing Director, Tom Borsky contends that the unlisted syndicate market offers more realistic asset values and greater stability of both income and capital than the publicly listed Real Estate Investment Trusts. The REITs, as they are known, are far more volatile with the value of equity more closely reflective of the overall share market than the fair value of the underlying real estate assets.
Investment in Peak Equities Syndicates is open to “wholesale” or “sophisticated” investors as defined in the Corporations Law. Intending investors are provided with an Information Memorandum setting out full details of each proposed property acquisition before applying to participate in a particular Syndicate.
Mr Borsky highlighted the following benefits of investment in Commercial Property Syndication:
1. Security Through Diversification – Investing a smaller sum in one or more Syndicates provides investors with the opportunity for greater diversification in comparison to investment in a single asset. Investment risk is further reduced by the Manager’s thorough Due Diligence process prior to committing to the purchase of each asset.
2. Quality of Assets – Investors can participate in the ownership of premium “A Grade” commercial assets that may otherwise be out of the reach of an individual investor. Investment parcels usually range from $200,000 to $1 million.
3. High Income yields with monthly income distributions – commonly 8% p.a. or better, resulting from the Manager’s expertise in asset selection and management. It is also common for a significant percentage of the Trust income to be “tax advantaged” and in most instances the yield is further improved through relative land tax advantages (intending investors should consult their professional advisor or speak with the Fund Manager for a detailed explanation.)
4. Opportunity for Capital Growth – reflecting the Manager’s expertise in selecting and managing the property and the tenants to maximum benefit.
5. Set and Forget – Every aspect of the management of your investment is the responsibility of the Fund Manager. Individual investors need not be concerned about vacancies, repairs, capital expenditure, rental collections or new lease negotiations.
Direct property investment is acquiring properties and leasing them out to either residential or commercial tenants depending on the property’s regulatory approvals. In this instance, you will acquire the property (through your own funds or with a loan) and lease the property out on commercial terms. You will be entitled to the full rental return and any capital growth on the property. You will also be responsible for all applicable expenses as the owner of the property.
Real estate is a good investment, but it might not always be the best investment when compared to other investments at a point in time. Notwithstanding, you rarely buy and sell real estate frequently due to the extensive costs incurred in doing so. Typically, you hold real estate for a long period of time so that you can capitalise on the property value’s growth.
Direct property investment means that you own and manage the entire property. Indirect property investment means that you subscribe to an organisation that owns and manages the property. Depending on the quantum of your subscription, you are entitled to a particular rate of return. Direct property investment requires a higher initial outlay, whereas an indirect option requires a lower outlay.
The amount of capital required to invest in real estate depends on the real estate market. The initial upfront cost is not cheap because you must factor in the value of the property, legal fees, any regulatory approvals, stamp duty, taxes and other expenditure. You will need to have extensive savings or access to a bank loan to assist you to enter the market.
You can invest in real estate without buying property through property syndicates and trusts. Syndicated investment is essentially passive in nature. The responsibility for identifying and negotiating the purchase of suitable properties rests with the Syndicate Manager, who undertakes an exhaustive ‘Due Diligence’ investigation of the assets prior to committing to a purchase.
Yes. Real Estate Investment Trusts (REIT) are an indirect form of investing in real estate. As a subscriber of shares in the REIT, you are entitled to the proportionate rate of return on both income and capital. Your subscription can give you various rights depending on the contents of the agreement. It is advisable to engage both a financial advisor and lawyer to assist you when purchasing these shares.
September 19, 2019