Property Syndicate Risks (and Property Fund Due Diligence #2)
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- เผยแพร่เมื่อ 8 ก.พ. 2025
- What is a property syndicate and more importantly, what should you watch out for when considering investing in a property fund? Syndicated property investments are common for commercial property and property development. 🔔 SUBSCRIBE: bit.ly/2ABxWz1
📞 CONTACT: kentcliffe.com.au
Read our disclaimer: all information about property syndicates is general and does NOT form any part of financial advice. ❗DISCLAIMER: bit.ly/2zldMJh
Following on from part one, the next areas to start conducting due diligence on property syndicates is the feasibility.
I do this by reconstructing the financials using my model. I confirm the total value of the project. Then deduct expenses to work out the net sales revenue of the property fund.
I then benchmark my costs against the syndicator's numbers. The land cost, stamp duties and settlement costs are straight forward. The consults fees, site works and construction costs need to have some more in depth due diligence as these make up a large proportion of the project's expenses.
A trick with confirming the property syndicates' construction numbers is to use a $/sqm. It is also worth considering the funding assumptions by checking the costs, understanding the loan to cost ratio and the loan to end value. Pre-sales of the project's units is an area which impacts the delivery timing of the development.
Once you understand the financials, the next area to consider is the timeline and delivery. It is prudent to know the average time each step in the development process to see what might be a little too optimistic.
After all the desk-bound due diligence of the property syndicate, it is worthwhile to head out on-site to check the location. You should consider power lines, main road, adjoining property and other detracting factors.
Looking at the land itself, I do over more factors in my on-site development due diligence video. • Avoid Expensive Mistak...
Finally, the end sale value is worthwhile considering. I create a list of comparable properties sold, withdrawn and for sale. I go past these to confirm how they relate to the product of the property syndicate.
The other questions to ask the fund manager include:
copy of the trust deed if it is a unit trust;
any material contracts such as the project management agreement;
Seeing how much the promoter is personally investing; and
Confirming what other projects they have completed.
Thanks for the video. Would a property lawyer be the most ideal professional to also review the IM?
In my general opinion, a lawyer will advise on the legal / structure risks, so they could be handy when reviewing the trust deed. A large portion of the risk is commercial / investment risk, and lawyers don't have the background in property / financials to make an informed call. Financial Advisors are more about allocation / disclosure, and it's hard for them to provide product advice that is NOT part of their AFS licence platform... AND valuers may provide property end sale / feasibility guidance (but they don't like to). A QS might provide some commentary around construction, BUT... TL;DR: there is no one easy person to provide property syndicate advice. SOOOOOOO be careful and do your research!
@@KentCliffe no easy answer hey :) Thanks for shedding your helpful insight on this
What platform do you use to find out sales and time on market?
I use RPdata, I haven't looked at others in a while. So don't take it as a recommendation.
Excuse my ignorance but what are the GRV and IM acronyms you us.
Good question, I didn't think I explained GRV too well. Basically it is the project's total gross revenue (Inc GST). IM means Information Memorandum, basically the document I'm going through in this video.
@@KentCliffe thanks for your quick response. Loving your videos because I work for an Architectural Company in Perth and 'm itching to get into the property market here. I arrived in Perth from South Africa and your channel is helping me so much in understanding the Australian Market.
Great to hear, welcome to Perth and enjoy learning about the market. Feel free to pass on the videos to anyone else you'd think it could help 👍