The best time to invest in syndicates

The returns on property syndicates have been hovering around 9 per cent for most syndicates, making them attractive alternatives to direct shares and managed funds.

But the question remains, when is the best time to invest in the property syndicate sector, knowing property is cyclical?

Austgrowth Property Syndicates director David Davies says (not unexpectedly) that any time is the right time to invest in property syndicates that are part of a balanced portfolio.

“It is like investing in the share market and if the investor has an investment in a couple of syndicates, then they are spreading the risk.”

SAITeysMcMahon (SAI) managing director Graham Brewer agrees direct property should be a part of a portfolio and syndicates are a way of achieving that investment.

“There is still a future for syndicates as part of an investment portfolio,” he says.

“But we believe investors should be looking at composite or sector specific syndicates, such as healthcare, in the future.”

SAI has a composite property syndicate that invests in office, industrial, retail and leisure across four states. It is one of the few composite property syndicates available to investors.

Austgrowth is a boutique syndicator operating on the eastern seaboard. It has about 20 small syndicates in operation or being created.

Davies says commercial property syndicates are still good investment opportunities although some segments, such as industrial, are becoming overpriced.

“We do not pay silly prices for properties to put in our syndicates,” he says.

“Areas such as retail have poor stock and are expensive. Our investments are very conservative.”

Davies says low yields do not augur well for properties that will have to be sold in a few years time when the syndicate finishes.

Brewer says managers in syndicates need to actively and aggressively manage the investment.

“Properties in the syndicate should be sold if there is an opportunity and there should also be the ability to buy additional investments if the opportunity arises.”

“The manager [of the syndicate] must be property orientated, but there must also be a team to handle the financial areas such as interest rates and capital markets.”

Becton Investments general manager David Hinde says investors need to apply property fundamentals when looking at each syndicate.

Brewer warns a bubble in commercial property is building, but not as fast as the current residential bubble.

“The commercial bubble has commenced and will continue to grow in areas such as office and retail,” he says.

“There is not going to be an immediate crash, but I have concerns for the medium to long-term outlook for areas such as office buildings.”

Davies says properties in a syndicate should be in growth areas.

“We have sold two syndicates before the end of their terms and syndicates can always be extended if the market is not right for selling,” he says.

Hinde says syndicates are an expensive way of buying direct property, but if the manager has property management experience and strong financial management skills, this type of investment offers a lot less volatility than the listed property sector.

“You do need a long-term view with syndicates and the manager should be able to meet investors’ expectations,” he says.

“People should look at the prospects for growth in the properties before investing.”

Brewer says investors should look carefully at the types of syndicates they have invested in and be careful they haven’t invested in just one sector, such as retail.

“Don’t put all your eggs in one basket, look to diversify,” he says.