The fast-approaching pension reforms which will allow people to draw cash from their pension fund and spend it how they see fit are causing some concerns. Many fear people will take advantage of these new regulations and tax incentives to draw down billions of pounds from poor-performing pensions and then spend that cash unwisely.

Building PlaneDeciding how best to invest your pension money can be a minefield, but many will be looking to put that money into property.

Property is performing well and we have seen unprecedented amounts of cash invested in commercial property over the past 12 months because of huge double-digit annual returns. The residential property market is seeing decent growth and that will also be attractive to savers who are being held back by meagre interest rates with no prospect of increase.

However, individual property investment does have one major drawback. It can be very difficult to unlock that cash when you need it the most and, if you don’t have the experience and insights needed for property investment, it can be a lottery.

Alternatively, syndicated property investment can be a sound bet for people looking to invest their pension elsewhere. Not only does it give you access to a wider pool of properties, but the choice of which property to invest in is entirely yours rather than handing control of your investment to a discretionary property manager. Each purchase is thorough researched with all the necessary due diligence being made available for investors to review and form their own opinion. Here I’ve listed five reasons why you should consider investing your pension in a syndicated property fund.

Building Tower1. Spreading the risk of your pension investment

By joining a syndicate you can invest your money in multiple properties, which helps to spread any potential risk of tenant default which is one of the main risks with any commercial property investment. The minimum investment is £25,000 and that means you can choose to invest your pension cash in a wide variety of different properties. There is no maximum, but typically people invest around £150,000.

As an added bonus, each property is independently managed, valued and the legal title to the property should also be held in the name of an independent Professional Custodian Trustee, ensuring that the property is protected even if the investment manager ceases to exist.

2. You can sell or transfer your share in the property at any time

With individual property investment, your pension money will be tied up in the property until you can sell it. At best, that means a two month wait for your money should you need it. In reality, you will probably have to wait at least a year to sell the property and get your pension fund cash back.

With syndicated property, an investor can sell at any point and the syndicate as a whole can also decide to sell the property with a 75 per cent majority vote.

Typically, in our case, a holding is sold to another syndicate member or another member of Rougemont’s qualifying High Net Worth client base.

Ideally, syndicated property is a five-year investment, but should you wish to sell, a typical syndicate sale takes just three weeks and Rougemont as the operator of each syndicated property is authorised to assist with this role.

3. Average annual returns of 6-7 per cent on your pension money

With interest rates having been anchored at 0.5 per cent for years and the threat of a further cut now on the cards, savers have been heavily punished during the recession. As a result, most are now looking to take control and find the best returns they can for their pension fund.

Syndicated property investment delivers average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.

Each investor receives a quarterly income from the property and also benefits from any potential growth in value of the building.

Total returns on commercial property last year hit 19 per cent and, while it’s unlikely to be as high again this year, investors will still be able to expect double-digit returns when factoring in both income and capital growth, providing they invest in the right property.

4. Syndicated property returns are tax free and offer long-term growth for pension savers

BuildingAround half of all investors in syndicated property are using cash from their pension funds as any income or capital gain from the property into their pension is tax free, which is obviously a real benefit.

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. Depending on their age and profile, we find most investors simply don’t want the hassle of playing the equity market every day or having ownership of a single property where all their ‘eggs are in one basket’ and they have to actively manage the property.

5. Pension investors get expert insight and guidance

Perhaps the biggest benefit of investing your pension money in a syndicated property investment is the knowledge that you are getting expert advice and quality investment prospects.

Rougemont Estates minimises risk in this sort of investment by drawing on their years of knowledge and buys properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion. Rougemont offer the opportunity to it’s High Net Worth audience by way of a detailed investment prospectus. The decision of whether to invest is then up to each investor. Rougemont does not have discretion on any investors funds.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock out there and investors have to be careful.

However, we are confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

By turning to a syndicated property investment company, you can invest in properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use.

For pension savers, we feel there are some real areas of opportunity within the prime and secondary market where they will be able to benefit from acquiring quality assets that present a real opportunity for growing their cash for the future.

What type of property should I invest in? What are the biggest commercial property investment challenges? How safe is commercial property investment? James Craven, the managing director of syndicated property investment company Rougemont Estates, answers the key questions for people looking to invest in commercial property.

What’s the biggest challenge to finding the right properties for investment?

The big issue at the minute is a lack of available investment stock to buy. The occupier market is picking up and demand is growing, but there is a significant lack of new quality space being developed.

Those who are unable to move are just renegotiating preferable lease terms with their existing landlords and seeking to reduce their overheads. This means there are very few new long term leased investment properties being created and made available outside of the supermarket or hotel sector.

There is a two tier market, long term secure income which is in demand and benefitting from premium prices and then there is the secondary short term leased market where banks will not fund purchases and landlords can’t find occupiers.

This secondary market is consequently being heavily penalised by the marketplace due to the risk involved. Transversely prices remain competitive for secure long terms income due to the flight to security.

What particular types of property are most attractive for investors and why?

Properties that are located in strong city locations, with leases to financially strong tenants, in excess of 15 years with rent reviews every five years that are linked to the Retail Price Index (or CBI) are the ingredients everyone is after.

These are attractive due to their risk-free nature, plus growth is obtained by the rents increasing in line with inflation (RPI & CBI).

We also consider assets that are in prime locations but are being undervalued purely due to the lease length remaining. For example, even nine year unexpired leases are being devalued as opposed to 12 years which is deemed acceptable.

Therefore, if we can target undervalued assets in prime locations with in excess of 8 years of income remaining, the location, rental level and nature of the property should underpin the prospects for a good long-term investment.

How safe is commercial property as an investment?

For many investors who purchased assets between 2005 and 2008, the bubble will have burst on them largely because they will have borrowed from the banks to acquire assets and the banks all wanted their money back.

On the other hand, we typically only acquire with cash funds and so, although the capital value of the property may have been affected as a result of the deflation of values, our investors’ income stream remains unchanged provided the tenant has remained in business.

Consequently, our investors were not forced to sell their properties at the worst possible time.

What happens if there is a further downturn in the commercial property sector?

It is unlikely we will see another commercial property downturn in the near future because there is very little available space at the minute. When we entered the last downturn we had a surplus of supply and that had a heavy impact on the sector.

However, that space has now pretty much gone and we are faced with a severe shortage. With occupier demand rising and limited development happening, we will see strong rental growth as developers slowly work to provide the space these businesses need.

There were also some harsh lessons learned from the last downturn where a lot of people were left sitting on empty stock with draconian rates to pay. No-one will be keen to see a repeat of that and I don’t expect to see any speculative development for some time yet.

Syndicated property is not affected in the same way during a downturn. Because syndicates are typically purchased with cash funds and sensible levels of borrowing, there are no third party pressures from a lender seeking to sell the property at the worst possible time. It is therefore a matter of time for the syndicate to hold the investment, continue to enjoy the income stream from the tenants rent and wait until values improve before then looking to sell.

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.