Extending property exposure

A considerable number of property syndicates will be coming to the end of their investment period shortly, but a research house believes most will be extended.

Property Investment Research (PIR) director Mark Wist said research shows about $1 billion of property syndicates will reach maturity this year and almost $1.5 billion next year. In 2010, more than $2 billion of syndicates will reach maturity.

Of the syndicates that have matured in the past 12 months, almost all have been rolled over into another investment period, he said.

“The normal investment period for a syndicate is six years, and a considerable number of them were created in the first few years of this decade by managers such as MCS and WRF.

“Many investors have seen their syndicates develop good returns and they believe the run will continue for another six years,” he said.

The average return has been about 9.5 per cent during the past three years, according to PIR.

The researcher found that about 50 per cent of syndicates performed on target while about 25 per cent outperformed their investment return targets.

“The argument against selling the assets of the syndicate is the CGT implications,” Wist said.

“If the investors did sell, they would be selling properties that were bought on yields of 9 per cent and would be sold on yields of between 15 to 16 per cent.”

He said the syndicate managers would also be happy to keep the vehicles running, as it was good source of fee income for them.

However, the number of new property syndicates is decreasing as many managers turn towards creating unlisted retail funds, which are open ended and can raise further capital without having to create new trusts.