Investment in Proportionate Ownership Schemes (Syndication) is one way for experienced property investors to enjoy the value and earnings from high performing real estate assets without having to self manage the asset. Syndication is typically a passive form of ownership, most commonly in office, industrial or retail properties that comes with a full management package. The main advantage of property syndicates is that they allow smaller investors to participate in higher yielding commercial properties that would otherwise only be available to wealthier individuals or institutional investors. It is an effective and affordable way to participate in commercial property markets. Cash returns available from commercial property have generally been higher than bank term deposits and are also more likely to have outperformed residential property investments.
The property can be purchased using investor equity or through a blend of investor funds and borrowings from a bank. The amount borrowed from the bank will be secured by non-recourse first mortgage over the property. The purchase will be carried out by a nominee who will hold the title to the property as a bare trustee on behalf of each investor on a proportionate basis.
The number of investors required for each scheme is normally determined by the amount of investor equity required divided by the value of each interest being offered (e.g. $10,000,000 equity in interests of $100,000 means there will be 100 interests available). Investors are able to purchase one or more of the interests available should they wish. Most syndicates have a minimum investment requirement, it is common for this to be in the $25,000 to $100,000 range. Once the property has been purchased, a Scheme Manager is appointed by the Offeror. The scheme manager will become responsible for the day to day management of the asset, and the syndication company will take care of the accounting and distribution of income to the investors. The accounting and distribution of the income is outlined in the Investment Statement and the Deed of Participation and is generally prepared on a monthly basis. Investors are also normally sent regular reports of all activity undertaken on their behalf in relation to the property.
Most Syndications do not have a termination date and will continue until a majority of investors vote in favour of winding them up.
Potential investors should seek independent, competent advice about this type of investment product if they are not familiar with the various factors that can affect a commercial property's income stream and capital value.