What is a Property Syndicate?

Commercial Property Syndicate

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 the 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.

What Does A Property Syndicate Invest in?

A property syndicate will invest directly into commercial and industrial properties. It consists of a group of investors who, individually, would not have sufficient capital to invest in commercial real estate. By pooling funds together, the commercial property syndicate can acquire a larger more valuable property with better income return and capital growth potential.

The members of the property syndicate are entitled to a share of the income derived from the high-yield secure investment. At Peak Equities, we manage the commercial property investment syndicates for a fee so that you do not have to worry about collecting rent from tenants, dealing with maintenance issues and managing expenses.

What Factors Should You Consider Before Investing in A Property Syndicate in Australia?

Before you invest in a property syndicate, it is advisable to conduct comprehensive due diligence. This might require you to engage experts in areas such as property investment, legal, accounting and finance. It is important that you are comfortable with the investment prior to making the commitment. At Peak Equities, we can help you navigate this process.

Here is a list of factors you should consider before investing in a commercial property syndicate:

• Duration: The duration of a high yield secure investment is crucial, and it will depend on your objectives. Longer term investments will derive net capital gains.
• Management: Whilst you can engage a professional manager to manage the affairs of the property syndicate, a successful investment does require your time and effort.
• Type of property: Consider whether you want to invest in one type of property or a diversified collection of properties. This will help balance the returns if there is a shock to one part of the market.
• Cash flow requirements and yield: Consider what returns you are expecting to receive on a periodic basis. Ensure that this periodic return suits your cash flow needs now and into the future.
• Costs: Investing in commercial real estate does have costs. Assess the scope of these costs to ensure that your investment delivers a stronger net yield.
• Government Policy: Government policies can affect the returns and gains of an investment in property. Most of these changes are beyond our control, but you should be aware of the trends in policy setting.
• Taxation Benefits: Most high yield secure investments producing an income or gain will incur taxation costs. It is wise to consult with an accountant to understand these costs and the best strategy to minimise your tax expense.
• Exit Strategy: You might need to exit a commercial property syndicate for a variety of reasons. Consider the most likely or obvious reasons and ensure that the agreement covers these contingencies.
• Reinvestment: To grow the value of your investment in the property syndicate, you might wish to reinvest some, or all, of your returns in the syndicate. Consider how the agreement will accommodate reinvestment.

How Do Property Syndicates Work?

The property syndicate also known as commercial real estate syndication will pool funds from many investors and acquire real estate property for the benefit of all those involved in the syndicate. The syndicate will typically be created using a real estate investment trust arrangement. An agreement will govern the relationship between all parties and stipulate key terms and conditions of the unlisted property trust.

A key term in the agreement is the objective of the property syndicate. This will identify the reasons for the creation of the property syndicate as the goals are typically shared across the group. At Peak Equities, we can help you and your fellow syndicate members understand the terms of the agreement so that you are comfortable with your investment.

The Benefits of Syndicated Property Investment

Here is a list of the benefits of syndicated property investment:

• Less Initial Capital Outlay: Individual investors might not be able to acquire larger properties due to the higher initial capital outlay required. A property syndicate will avoid this issue as you can pool funds to acquire higher valued properties.
• Grow Your Portfolio: The pool of funds will help you acquire larger properties with greater growth potential. Also, with a low initial capital outlay, you can save future funds for other investments as you will not be indebted.
• Access More Property: Investing in more than one property is ideal. A property syndicate will allow you to invest in multiple properties to help you maximise your earnings potential.
• Diversify Your Investment: A property syndicate, created with pooled funds, will help you to access different types of property. Diversifying your portfolio helps you spread your risk. At Peak Equities, we have experienced professionals who know how to source lucrative properties.
• Save Time And Money: Investing in a professionally managed property syndicate will enable you to save time and money. As your investment is managed for you, you can spend more time considering how to grow your portfolio and less time worrying about administrative matters.
• Stable Returns: By diversifying your investment in a property syndicate arrangement, you will be able to balance your risks. This will help you safeguard your investment from shocks in the market and ensure that your investment remains stable on an upward trajectory.

The Risks with Syndicated Property Investments

Here is a list of the risks with syndicated property investment:

• Less Control: Since there are more than two people in a commercial property syndicate, you might find that you lack control in decision making. To minimise this risk, regular communication with your fellow syndicate members is required and it is wise to ensure that you engage an independent consultant to help manage any differences.
• Consider Interests of Others: You will have to consider the interests of others which might not align to your needs and requirements. Pooling funds together to fund larger investments does carry this risk. However, this can be managed by being transparent about your goals and objectives and articulating this in the overarching agreement.
• Potential Management Issues: If you engage a manager to manage the investment, you will need to stay informed of all management-related matters. Seek regular updates from your manager so that any potential issues are addressed in a timely manner.
• Less transparent: You might find that certain members of the property syndicate have hidden intentions. It is important to know that an individual’s needs and requirements do not remain static and they do change over time. Rather than perceive a change as a negative, work with your group to resolve the issue for the betterment of the syndicate as a whole.

Why Invest in Property Syndicates in Australia?

The property market in Australia is strong, resilient and growing. With the population increasing due to natural births and migration, there will be a rising demand for housing, commercial offices and industrial spaces into the future. As the urban areas fill with people, and more people consider living away from the city, new developments will be created to house the expanding population.

With secure lending arrangements, robust government policy and taxation benefits, investing in property in Australia is ideal. A property syndicate will enable you to invest in the property market quicker and be able to access higher yield and stronger capital gains from large scale developments. This will help you build a diversified portfolio with reasonable returns to help you achieve your financial goals quicker.

Why Choose Peak Equities as Your Commercial Property Syndicator?

Peak Equities is an established and leading specialist property syndicator servicing the sophisticated investor market. With an impressive track record and extensive experience in commercial real estate investing and asset management, we focus on wealth creation and security for our clients by sourcing high-yield, secure investments with sound growth potential. From the time of acquisition and throughout the investment term, we engage closely with our investors to ensure that individual needs and expectations are satisfied.

We have a team of experienced professionals who understand the property market and strive to strengthen our investors’ portfolios. Our client-focussed approach differentiates our offering in the market. Contact us today by calling (03) 9863 8380 or email info@peakequities.com.au to learn more about commercial property syndicates.

Commercial Property Syndicates FAQs

What is a property trust?

A property trust or property syndicate is a method of investing in many properties without owning them completely. Real estate is an expensive investment for the average investor. In order to invest in property when you do not have the funds to acquire the property entirely, a property trust allows you to acquire units in the property trust. This helps investors band together to acquire the property through a central owner who holds the property on trust for various unit holders. Each unit holder is entitled to share in the income and capital of the trust, in proportion to their unit holding.

What is a unit trust and how does it work?

Property syndicates are established through a central body, i.e. us, for a finite period (usually around 5 years), after which it is intended (but not mandated), that the asset be sold. Our syndicates guarantee ordinary unitholders the right to cash out their investment after 5 years, whether or not the property is sold at that time. We, as the trustee, have the right to sell the property and wind up the trust before 5 years, if we consider it in the best interests of unit holders to do so.

What is Australian Financial Services Licence (AFSL)?

Syndicate operators are required to hold an AFSL which imposes comprehensive and strenuous obligations on the licensee to protect the financial interests of individuals. 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 applicable legal obligations.

What is direct property investment?

Unlike property syndicates, direct property investment allows investors to acquire properties outright and lease the property to investors for a return. Direct property investment requires the investor to have the funds to acquire the property (or with the assistance of funds from a loan) and then lease the property out and reap the full rental return and capital growth.

What is unit trust investment?

Instead of acquiring the entire property yourself, you invest your funds with a trustee who will manage the investment for you in your best interests. Trustees have strict obligations to conduct their operations in an effective manner. Each unit holder will be entitled to a proportion of the rents and capital growth depending on the number of units they have acquired. This helps investors who are unable to purchase entire properties enter the real estate investment market.

Is buying commercial property a good investment?

Like any type of investment, there are positives and negatives. There is no static guide to whether commercial property is a good investment. The real estate investment market changes daily and it is essential that you engage a professional advisor to provide with you specific, accurate and up-to-date advice when you are ready to invest.

What is real estate syndicate?

A real estate syndicate is a group of investors who pool their funds to buy or build properties. It’s not easy for individual to buy such big or commercial properties but it’s possible for a group of financial backers or investors to invest in big real estate projects.