Pooling power

Pooling power

Total Property - Issue 7 2019

Syndications are a relatively simple and accessible way for investors to take part in the ownership of institutional-grade properties at an entry-level price.

They open the way for investors to buy into either individual buildings or funds with multiple properties. Money from individual investors is pooled and the properties are managed on their behalf, with cash returns distributed to investors at regular intervals.

By buying into a range of products in this way, it’s possible for investors to get the benefits of diversification through properties in different locations and property types, along with different tenant profiles – all for a fraction of the up-front capital required to achieve this through direct property investment.

The first syndicated offering marketed by Bayleys, the Vertex Pacific building in Hamilton, in 2003 raised $1.85 million of investors’ equity. Since then, Bayleys has managed the sell-down of more than 60 syndications across Australasia with a total property value in excess of $1.6 billion and around $1 billion of equity raised.

Today it is the sole selling agent for syndicated properties and funds offered by Augusta Funds Management, a wholly-owned subsidiary of NZX-listed Augusta Capital Limited. As recorded in June, Augusta Funds Management had about $1.8 billion of assets under management across 74 properties in New Zealand and Australia.

GROWING INTEREST

Mike Houlker, head of Bayleys syndication and investment products, says syndications have come into their own as an investment option in the low-interest-rate environment following the Global Financial Crisis as holders of interest-bearing investments look elsewhere for better returns.

In recent times, Bayleys has raised more than $100 million of equity in a multi-asset fund offering, and $250 million over one year.

Houlker believes more investors will warm to syndications as renewed cuts in interest rates bite further into returns from term deposits.

“The low investment entry point, typically starting at $10,000 to $50,000, makes them doubly appealing, opening up stakes in prime property that would otherwise be out of reach for many small investors,” he says.

Syndications do, however, draw a wide range of investors, including some who invest millions of dollars.

“They appeal to a diverse range of people motivated by the prospect of a hands-off investment with rewarding total returns,” says Houlker. “Particularly given the relatively modest capital contribution required, and the seemingly ever-lower returns available elsewhere from the likes of term deposits.”

DIVERSE OPPORTUNITIES

Bayleys’ syndication and investment products team provides access to commercial, industrial and retail investment properties in New Zealand and Australia. These investments take the form of either a “syndication” – usually a single property in which a group of investors take part in the ownership; or an “investment fund” – usually a group of properties with similar attributes in which investors can purchase shares.

Recent opportunities – all now fully-subscribed – have included new premium-grade, five green star office complexes in Auckland’s CBD at 96 St Georges Bay Road, Parnell, and 33 Broadway, Newmarket – with Xero and Mercury NZ respectively as anchor tenants. Both investments offered a 7.0 percent pre-tax return.

Other opportunities have included the Augusta Industrial Fund, an open-ended, unlisted property fund offering the chance to invest in a portfolio of strategically selected industrial assets with diverse tenants and locations across New Zealand’s industrial property sector. The pre-tax return was recorded as 6.5 percent.

Most investments marketed by Bayleys have no fixed term. The manager will recommend the best time to sell the property, and in most cases this will happen when a resolution is passed by at least 75 percent of investors.

However, investors can sell their individual units or shares at any time, in a “secondary sale”.

Upon sale of the property, or a secondary sale, investors may receive a return greater than what they paid for each unit/share if there has been a net capital gain.

Tax and various fees apply to investments, and these vary according to factors such as the type of product or offer, whether the property is in New Zealand, and the prescribed investor rate of the investor based on their taxable income.

The information in this article is intended as general in nature. Prospective investors are recommended to seek personal advice from an Authorised Financial Adviser which takes into account their personal circumstances before making an investment decision.


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