18th February 2014

Syndicated Property Investment questions

Who invested in syndicated property? How many people are involved in a syndicate? What are the risks of syndicated property investment? How can I sell my syndicated property stake? James Craven, the managing director of syndicated property investment company Rougemont Estates, answers the key questions for people looking to invest in syndicated property.

Who are the typical investors in syndicated property?

A typical investor is 45-years-old and is seeking a secure, long-term income that offers the prospect of medium to long-term capital growth.

Around half of investors acquire through their pension funds, SIPPs or SSAS as any income or capital gain from the property into their pension is tax free, which is a real benefit. Other investors include cash investors, family trusts and farms seeking to diversify.

Rougemont Estates is regulated by the Financial Conduct Authority (FCA) and cannot promote opportunities to retail investors. Our investors have to certify themselves as being either Investment professionals or High Net Worth investors. This provides investors with the security that they are co-investing with similar qualifying individuals.

Has the typical syndicate member changed post recession?

We’ve seen no real change in investor type but we are seeing more traditional equity/share investors who can’t get the long term secure returns they want in the volatile stock market.

Depending on their age and profile, we find most investors who are 45-years-old don’t want the hassle of playing the equity market every day.

How many syndicate members might you have in any one property?

One recent investment we made had a syndicate of 40 members. Where the syndicates are more asset management-based, i.e. multi-let industrial estates, and a more aggressive management role is required, we try to keep the numbers down so that decisions can be made quickly.

Rougemont will co-ordinate decision making within the syndicate including keeping syndicate members informed of matters affecting the property and arranging for specific decisions to be made where necessary.

A separate RICS-regulated property management company will usually handle the day to day management of the property and will account to the syndicate members for all administrative functions; including the collection and subsequent distribution of the principal rent, insurance rent, and VAT.

What investments might these people have been making pre-recession?

Most investors looked to shares and corporate bonds which typically have a shorter period of certainty.

A number of others had built up a portfolio of buy-to-let properties but soon became fed-up with the hassle and have decided to sell up and invest their money in this sort of fund instead.

What is the minimum and maximum investment?

The minimum investment is £25,000 and there is no maximum, but typically, most keep to under £150,000.

How risky is investing in commercial property in comparison to other options?

This market is attractive for investors seeking a long-term income stream and the chance to buy discounted assets reflecting an attractive return.

There is always a risk in tenant default and in the current climate we have to undertake a very rigorous review of any tenants accounts before deciding to acquire. If the building does become vacant there is a risk that the syndicate would have to pay empty business rates and insurance until a new tenant is located.

However, we are seeking to acquire quality assets where the letting prospects are better than most in the current climate.

Can syndicate members sell or transfer their holding whenever they wish?

Rougemont as the syndicate operator can co-ordinate the sale of a holding. An investor can sell at any point and the syndicate as a whole (voting by 75% majority) can decide to sell the property.

Typically, a holding is sold to another syndicate member or another member of Rougemont’s qualifying client base. We don’t see people wanting to sell quickly as most see syndication as a five-year investment as a minimum.

A typical syndicate sale will take just three weeks, depending on price and expectations.

What would happen if Rougemont ceased to exist?

The syndicate would continue to own the property. The legal title to the property is held in the name of an independent Professional Custodian Trustee who must act in accordance with the wishes of the syndicate members.

The syndicate members are the individual legal owners of the title and Rougemont merely acts as managing trustee and regulated operator.

The syndicate Trust Deed includes a provision that allows the syndicate members to change the managing trustee should the members (acting together by a 75% majority of the ownership of the property) wish to do so. This structure safeguards both the legal title to the property and the ability of the syndicate members to appoint new trustees.