{"id":2563,"date":"2022-05-13T16:37:48","date_gmt":"2022-05-13T16:37:48","guid":{"rendered":"https:\/\/royabhishek.in\/urbanbuyer\/property-syndication-opportunities-abound-in-smaller-capitals\/"},"modified":"2022-05-13T16:37:48","modified_gmt":"2022-05-13T16:37:48","slug":"property-syndication-opportunities-abound-in-smaller-capitals","status":"publish","type":"post","link":"https:\/\/royabhishek.in\/urbanbuyer\/property-syndication-opportunities-abound-in-smaller-capitals\/","title":{"rendered":"Property syndication opportunities abound in smaller capitals"},"content":{"rendered":"

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The smaller capitals of Perth, Adelaide and Brisbane have been identified by a property syndication expert as property syndication locations with greater potential than more mature markets.<\/p>\n

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The smaller capitals of Perth, Adelaide and Brisbane have been identified by a property syndication expert as property syndication locations with greater potential than more mature markets.<\/span><\/p>\n

Many investors are exploring alternatives to traditional property investment, including property syndicates. <\/span><\/p>\n

Property syndication is a direct property investment where the smaller property investor with limited available capital has an opportunity to invest in commercial, retail or industrial properties.<\/span><\/p>\n

Managed by property syndicate professionals who should have a prospectus lodged with the Australian Securities and Investment Commission, this type of investment enables people to invest their capital and leave the experts to manage the day-to-day activities relating to the associated property. <\/span><\/p>\n

Investors are entitled to a percentage of the income that is acquired from the property in which they have invested. <\/span><\/p>\n

The Australian Investors Association (AIA) said property syndicates have been very popular since the 1980s and 90s for investors looking to diversify their portfolio.<\/span><\/p>\n

\u201cSince then, they lost favour partly as a result of property companies, such as Centro and Octaviar that operated syndicates, suffering significant financial problems,\u201d the AIA says.<\/span><\/p>\n

But according to Cal Doggett, Managing Director with Properties & Pathways, the entire Australian commercial property landscape is strong and experiencing significant growth. <\/span><\/p>\n

\u201cI certainly feel there are still sustainable returns to be enjoyed from investing with a syndicator who can leverage not only debt but their expertise,\u201d he said. <\/span><\/p>\n

\u201c<\/span><\/strong>Unlisted syndicates typically perform best when they\u2019re acquiring property undervalued and divesting them above value.\u201d <\/span><\/p>\n

\u201cOn the other side of the equation are listed syndicates (REITs)<\/a>, which typically provide a more moderate investor return which allows them to buy at value and take less risk.\u201d<\/span><\/p>\n

\u201cSo, while we can see many of the larger syndicated institutions buying property in Sydney and Melbourne, it\u2019s our feeling that these markets are super-hot.\u201d<\/span><\/p>\n

\u201cThis means buyers are overpricing future earnings or potential upside, hence prices are <\/span>incredibly high and capitalisation rates are at all-time lows.\u201d<\/span><\/p>\n

\u201cThis dynamic is swiftly making its way across borders, into the less mature markets of Brisbane, Adelaide and Perth<\/a>, and these states still present a great opportunity for value-buying.\u201d<\/span><\/p>\n

Considerations before investing<\/span><\/strong><\/p>\n

Potential investors need to consider the cost of debt when it comes to investing in property syndicates, Mr Doggett said. <\/span><\/p>\n

\u201cThe cost of debt is a massive consideration for syndicates wanting to provide a healthy return for investors because leverage typically produces an improved investor return,\u201d he said. <\/span><\/p>\n

\u201cSo as interest rates rise, the delta between the rental return and the cost of debt gets squeezed, this makes it harder to produce the same return for investors.\u201d<\/span><\/p>\n

\u201cThe word of caution is to look beyond the headline investor return and see whether <\/span>the syndicator is managing their risk and their assumptions, which underpin this return,\u201d<\/span><\/p>\n

\u201cA syndicator can easily manage risk by prudently hedging interest rates, providing healthy assumptions around rental escalations, employing a lower leverage strategy and, most importantly, buying core property.\u201d<\/span><\/p>\n

\u201cThese factors will ultimately determine whether the investor return is sustainable given the almost inevitable increase in interest rates.\u201d<\/span><\/p>\n

Advantages and disadvantages <\/span><\/strong><\/p>\n

Glenn Hitch, Syndication Manager of SMATS Consortium, said syndication has its advantages and disadvantages, specifically it comes down to the underlying assets, how the risks are managed and how investors are structured and secured.<\/span><\/p>\n

He identified the pros and cons:<\/span><\/p>\n

Advantages<\/span><\/u><\/p>\n