St Laurence tries out new syndicate structure
Property syndicator St Lawrence will decide within the next couple of weeks whether demand is sufficient to launch an alternative structure to the traditional syndicate unit trust or special purpose company structures.
Monday, August 20th 2001, 11:40PM
by Jenny Ruth
Managing director Kevin Podmore says the company is currently testing the concept, known as "real property proportionate ownership schemes," amongst financial advisors and real estate agents.
If the reception is positive, St Laurence is also hoping to extend its target market beyond its traditional "mums and dads" type retail investors to those who are already investing directly in property such as rental housing and small commercial buildings.
In proportionate schemes, investors get a direct certificate of title to their piece of the property rather than shares or units in a company or trust. And because of the direct ownership, such schemes are exempt from the Securities Act requirements to issue a register prospectus or to have a trustee or other type of investment supervisor.
This dramatically reduces the costs, Podmore says. Setting up a syndicate can easily chew through $500,000. Another advantage is that investors get direct access to the tax benefits of any depreciation of the property.
Securities Commission chief executive John Farrell says that because proportinate schemes are covered by both securities law and land law, the commission granted the exemption from the Securities Act requirements back in 1997.
He isn’t aware of any proportionate schemes being promoted recently but says they’ve been used in the past by organisations such as real estate agents.
Promoters still have to issue a document very similar to an investment statement, which must contain an independent valuation of the property and the usual details such as any material contracts, leasing details, fees and charges, information about those promoting and managing the scheme and related party information.
The investment statement must also carry a warning that the usual prospectus and trustee investor protections don’t apply. And the manager is also required to send investors annual financial statements.
"The basic game is to ensure there’s proper disclosure. A registered prospectus probably doesn’t add too much in terms of protecting the rights," Farrell says.
If the market feedback is positive, St Laurence already has a property in mind. It recently bought The Warehouse store on Mt Wellington highway in Auckland for just under $5 million. St Laurence would be asking investors for about $2.3 million.
Podmore says the proportionate scheme structure
is more suited to properties in the $3 million to $5 million bracket
than St Laurence’s typical $10 million to $15 million syndicates.
But he envisages the individual investment to average between
$25,000 and $50,000 rather than the minimum $5,000 which usually
applies to syndicates.
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