What is a Property Syndicate?
Property syndicates, also known as Unlisted Property Trusts (UPT) or Real Estate Investment Trusts (REIT), offer qualifying, sophisticated investors, the opportunity to participate in the ownership of high quality commercial real estate that would ordinarily be beyond the reach of an individual investor.
Each syndicate established by Peak Equities Pty Ltd (Peak), acquires a single designated property. Syndicates such as these are known as “single property vehicles”. The syndicate is legally structured as a Unit Trust, with investors applying for Ordinary Units in The Trust. A unit trust is similar in many respects to a company, with units having most of the same characteristics as company shares. Each Unit-holder is entitled to share in the income and capital of the trust, in proportion to their unit holding.
These syndicates are established for a finite period (usually around 5 years), after which it is intended (but not mandated), that the asset be sold. Peak syndicates guarantee Ordinary Unit-holders the right to cash out their investment after 5 years, whether or not the property is sold at that time. The Trustee has the right to sell the property and wind up the trust before 5 years, if it considers it in the best interest of Unit-holders to do so.
The AFSL holder acts as Trustee of the Unit trust that acquires the property and the title to the property and mortgage finance are in the Trustee’s name. Under this structure, Investors have no liability either to the mortgagor, or to any trust creditors. This form of borrowing is described as “non-recourse”.
The day-to-day affairs of the Trust and Property are delegated to an associated company. This company is responsible for the establishment of the Syndicate; negotiating the purchase of the property; arranging all leases, financing arrangements and other agreements; maintaining all corporate and financial records; and dealing with estate agents, tenants and contractors.
Syndicate operators are required to hold an Australian Financial Services Licence (AFSL) which imposes comprehensive and strenuous obligations on the licensee. Principals of the licensee must possess extensive relevant experience and the appropriate degree of expertise. The conduct of a licensee is tightly regulated and the company is audited annually, with the auditors certifying that the company is complying with all of its legal and statutory obligations. The affairs and finances of each Unit Trust are also audited individually on an annual basis.
Wholesale investment products of this kind can only be offered to Sophisticated Investors, as defined in the Corporations Law, which requires each investor to obtain a signed confirmation from their accountant or taxation agent, confirming that the investor (and associates where designated) either own assets of greater than $2.5 million or have earned in excess of $250,000 in each of the previous 2 financial years. Where an investor invests $500,000 or more in a syndicated offering, they are not required to provide a Sophisticated Investor Certificate.
All returns to Investors are expressed in terms of the income and capital available to them, after the payment of any fees or entitlements to Peak or its associates. The quoted annual return is the return available to Ordinary Unit-holders.