February 19, 2019
Syndicated commercial property investment has always been a great way for smaller investors to get a piece of a multi-million-dollar asset. Since 2012, property syndication has seen a surge in popularity, with syndicates buying better quality and larger buildings. This has partly been driven by the changing economic climate, characterised by low inflation and low interest rates. As the residential market has become overheated and borrowing has been increasingly restricted, former residential investors have turned to the commercial sector. Simultaneously, business owners have found it more economical to buy their own building than to rent. Both these forces have pushed up prices in the sub-$2 million bracket, leaving the $5 million-plus category less competitive and with favourable returns.
According to Colliers, investors are asking the question: where are the high-yielding assets? The answer, for many, has been commercial real estate. Despite investor caution, prices have risen over recent years because the gap between interest rate lending (around 5% to 6%) and returns (8.5% as a 10 year average) continues to be lucrative. This is enabling purchasers to explore new markets, new sectors and new opportunities.
The commercial property sector has experienced good yields and low vacancy rates in recent times, with investors encouraged to debt-fund investments. Commercial property yields have hovered around 1.5% above lending rates, leading to capital gains as prices have risen. Investors want to get involved with commercial property, and proportional ownership offers an enticing way to do this, but the traditional liquidity risk remains off-putting.
This lack of liquidity can damage returns and may represent a conflict of interest for the syndicator. Syndex provides a platform to increase the liquidity of syndicated commercial property, by offering a place where syndicators can list their buildings and investors can resell their portions in a Trade Me-style auction. The investor is not reliant on the syndicator to sell their share in a building – and a fair market price can be achieved.
It was that secondary market barrier which was the initial motivator of the launch of Syndex, and Mike Jenkins, Executive Director, says providing an independent secondary market improves liquidity and makes syndication more appetising for risk-averse investors.
Below are a few examples of these deals on offer as at August 2018:
Secondary market offering - Victoria Scheme - http://bit.ly/VictoriaSch
Primary market offer - Kiwi Residential 1st Mortgage Fund - http://bit.ly/2NzHSKI
Ross Verry is CEO of Syndex and a shareholder. The views expressed above are purely his own. Please assess and research all your investment.