Syndicates ‘in vogue’ as investors hunt for yield
Agreater range of property syndicates is likely to be on offer next year, as their popularity with wealthier investors continues to grow.
More and more syndicates have been coming to the market in the last two years, driven by investors looking for better returns in a low interest rate climate.
Returns from syndicates are averaging above 7 per cent, well above the 3 per cent to 4 per cent of the banks.
With a few exceptions, however, investors generally have to invest at least $50,000 to get started.
John Church, Bayley’s national commercial director, says syndications have been a dominant force of the commercial property market this year, ‘‘and we can expect more diverse offerings in this sector in 2017’’.
Syndicates were also getting noticeably bigger, featuring larger and better quality commercial properties, Church said.
Where once they would have typically featured commercial properties in the range from $10 million to $30m, now they feature top properties worth more than $100m.
‘‘The demand for the product is certainly there and syndications are likely to remain in vogue while interest rates stay low.’’
However, Church said investors might need to accept slightly lower returns as the demand for high-quality properties raised property prices and squeezed their ‘‘cap rates’’.
One of the latest syndicates to emerge is from Tauranga-based Property Managers Group, which wants to raise $44m for two portfolios. One is its alreadyestablished Pacific Property Fund; the other is a new dedicated office fund for properties it manages in Auckland and Tauranga.
Property Managers Group chief executive Scott McKenzie said it was offering portfolios of multiple properties rather than just single buildings because its investors wanted to spread their risk.
‘‘This is part of our strategic plan to shift away from the traditional single building ownership structures where investor returns are more reliant on the performance and retention of individual buildings and tenants,’’ he said.
Its PMG Direct Office Fund will offer exposure to eight buildings and 50 tenants. It would seek to raise up to $29m at $1 a unit.
The other, Pacific Property Fund, will add to its portfolio a logistics industrial hub in the central North Island called Stag Park; a large-format retail property in the CBD of ‘‘a northern regional city’’; and a mixed-use commercial and retail property in Tauranga’s CBD.
Like any investment, syndicates do come with the old caveat of ‘‘buyer beware’’.
The laws on property syndications were tightened in 2013 and managers are now required to be licensed under the Financial Markets Authority.
But Alistair Law, a partner at law firm Anthony Harper, said a number of offers were still not regulated.
‘‘These include wholesale offers, which include offers that have a minimum subscription amount of $750,000 and offers made to ‘eligible’ investors. Other unregulated offers relate to the character of the offer – for example, ‘small’ offers – or to the relationship between the issuer and the investors – for example, relatives, or close business associates,’’ Law said.
If an offer was not regulated, Law said the issuer still had to issue a limited disclosure statement, but the scheme did not have to have a registered manager or appoint a registered supervisor.
Paul Keane, former chairman of property consultancy RCG, said he worried about the growing margins between the returns that the syndicates were offering and the banks.
While he was not suggesting a scenario like 2008’s finance company collapses, he said wouldbe buyers should look carefully at a syndicate’s tenants.
‘‘Given the recent spate of receiverships of well-known companies, it is wise to cast a careful eye over the tenant or occupier of syndicated offers, just to ensure there is long-term ability to pay.’’