Commercial Property Syndication
A property syndicate is a direct property investment where a number of investors pool their capital to purchase real estate, which forms the syndicate or scheme.
1 June 2019
Investment in proportionate ownership schemes, or syndications, can be an effective and affordable way to participate in the commercial property market and enjoy the returns from real estate assets without the daily burdens and commitment of property management.
Syndication is a passive form of property ownership, most commonly in office, industrial or retail properties that are managed by a professional manager. The main advantage of property syndicates is that they allow smaller investors to participate in higher yielding commercial property investments that are often only available to wealthier individuals or institutional investors. In recent years cash returns available from commercial property have also generally been higher than bank term deposits and rental from residential property investments.
Most syndicates have a minimum investment requirement, which can range from $10,000 to $100,000 plus. Once the property has been purchased, the manager becomes responsible for day to day management of the asset, accounting, and distributing income to investors.
Most syndicates do not have a termination date and continue until a majority of investors vote in favour of winding them up. This means it can be harder to exit a syndicate than it can be for other investments. However, there is often a secondary market allowing the sale and purchase of syndicate investments, subject to buyer demand.
New Zealand property syndicator, Silverfin Capital Limited, has rapidly emerged as a key player in the sector, notching up $280 million of property under management in little over two and a half years. Working with partner agency Colliers International, the Auckland-based company has added four new schemes and an underwrite fund in the last 12 months. All five schemes were fully subscribed, with the last three schemes being significantly oversubscribed, demonstrating increasing investor demand for Silverfin’s schemes. Silverfin has now set itself the ambitious goal of growing its portfolio to $1 billion within the next five years.
Miles Brown, Silverfin’s Chief Executive Officer, says the challenge is to balance that growth with the company’s investorfirst culture. “While we’ve set ourselves an aspirational growth target, we remain committed to being as accessible as ever. We’ll do everything we can to ensure our door is always open to our trusted community of investors.”
Brown says Silverfin brings a distinctive offer to the investment community. “We provide a property specific investment alternative. Rather than investing in a company or diversified fund, our investors can hand pick their assets by investing in a specific property or a small portfolio of related properties.
“Our schemes aim to off er solid, steady returns. Investors are paid monthly, with schemes typically targeting a pre-tax cash return of 7.5 to 9.0 per cent per annum.”
Silverfin’s next scheme, which is due to come to the market in June 2019, will consist a portfolio of six industrial/ agricultural properties leased to Inghams Enterprises (NZ) Pty Limited, on a 25- year lease term, which expires in 2039. The target distribution will be 8.25 per cent per annum, pre-tax.
Brown says that Silverfin are particularly excited by this scheme and expect investors to find the strong tenant covenant and long lease term an attractive proposition.