Adviser feedback 26/10 – Do you recommend property syndicates to your clients?

No. At this stage I’m not comfortable with the non-accessibility to funds.

I understand there is going to be something listed on the stock exchange that will allow trading of syndicates, and if that is the case then I would.

Instead I recommend different equities and income, both international and local equities. This includes listed property trusts and securities through the stock exchange. So it's still property, just not syndicates.

I've been in this business a long time and at this stage it is just the issue of accessibility but it may well change in which case I would reconsider.

Barry Smith

Financial Planner

Fahey & Ponti

We haven't in actuality but are wanting to do it, it's a matter of getting the right property syndicate.

If we were to do it, it would be one that had a high minimum entry level and we would offer it to selected clients rather than a mass market. We would put it together and make it available to some clients but it would be exclusive.

We would normally use property trusts through master trusts, for the typical retiree we would recommend property trusts.

But sometimes people have a leaning towards property so for example, we're in Perth, and we might be able to offer clients apartments in a block located in Sydney's CBD but they would need a minimum of $250,000 to invest. It is product differentiation between us and other fund managers.

We're just beginning to explore the area more now and hope for it to be a bigger part of our plan in 2001.

Patrick Canion

General Manager

R.M.G Financial Services

We don't recommend property syndicates at the moment, there is not a lot of research available and there are also issues in relation to liquidity and time frames of investment opportunity.

There are some reasonably good ones around, however we go with listed properties and property securities instead.

The reason for this is many property syndicates have a limited time frame, for example a month, to put clients in and then they close off. Many of our clients do not have liquid cash as they are already fully invested.

The level of independent research is also an issue, we don't have the resources to research in the same way other groups may.

There can be some dangers involved with property syndicates such as the downturn in the market and the time that the syndication is sold. As a property investment, liquidity is a problem and there is the potential impact of property value. Gearing levels can also affect income.

However, there are benefits such as a very good yield.

For us, other property investments are a lot more practicable in the interim.

I have nothing against property syndicates per se, and MCS is a group I'm very comfortable with for their management and expertise. I am keen to look at them for client's who are looking at yield but at the moment it doesn't fit in with our business plan.

We will certainly be looking at them in the future and are very open about it but now I think they cater to brokers and trading. We tend to have a steady stream of clients and are more focused on managing an entire portfolio.

Kevin Bailey

Managing Director, CFP

The Money Managers

Whilst there can be exceptions, in general we do not recommend property

syndicates to our clients for several reasons.

Most property syndicates have a liquidity problem. We can tell the client

it is a long term investment with limited liquidity over a certain period,

and they can be happy to proceed, but unfortunately experience over the

years has taught us that inevitably there are unforseen circumstances which

arise requiring some clients to gain access to the funds. We don't want our

clients to be in a position of being forced to sell off their holdings too

cheap due to lack of liquidity.

We do not pretend to be all knowing to our clients. We will only

recommend investments to our clients that we can reasonably analyse and

monitor, either directly, or via bought in research. We are not in a

position to do this with most property syndicates, or if we are, we cannot

justify passing on the cost of doing so to our clients.

Property syndicates often deal with relatively low value properties from

a few hundred thousand to a few million. For the really good deals around,

there is usually no shortage of well heeled or well connected individuals to

snap them up for themselves, leaving the property syndicates to pick up the

higher risk developments and properties.

Generally the level of property diversification within property

syndicates is not sufficient for us to feel we have diversified the

investment risk sufficiently for our clients.

We have a policy that we will only recommend investments that we have our

own funds in. Our level of exposure must be significant for it to be

important to us. Most property syndicates have not been an alternative

attractive enough for us to jump this hurdle. Whilst we recognise that there

have been a number of successful property syndicates in the past, there have

also been a number which have performed poorly or in line with less risky

investment options. We do not believe we can consistently determine which

syndicates will perform the best.

In general, we recommend our clients gain their property exposure via large,

professionally managed and listed property trusts. These offer significant

diversification, can be readily analysed and monitored, and have provided

excellent returns over the long term and have no liquidity problems.

We believe Property Syndicates are generally a superior investment choice

for individuals who would otherwise invest directly in similar commercial

properties as the syndicates will offer greater diversification and

management expertise, and may even have preferential access to certain

development opportunities.

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James Doogue

Director

James Doogue Securities