Commercial Property Education
- Thread starter JIT
- Start date
Hi Chris,
Would this increase in rentals/change in leases and decrease in outgoings, be the main reason for the $11.2 million valuation (increased from $7.24 million on purchase), prior to the DA/permit being taken into account?
Thanks,
GSJ
Various queries on Private Syndication
Hi everyone :
I noticed a few of you picked-up on the topic of Private
Syndicates, and raised several issues.
Perhaps a few points of clarification might be helpful.
ASIC's requirements
grossreal is quite correct in saying there being a limit of "no
more than $2 million" able to be raised by way of equity AND "no
more than 20 people" being involved in each Syndicate.
Otherwise, as a "promoter", you need to go the expensive path of
preparing a Product Disclosure Statement (PDS).
Therefore, so that everyone is quite clear : I am NOT a
"promoter" of Syndicates.
All I do is receive indications from my clients (new and old)
of their desire to join up with other clients; and then, simply
introduce them to an experienced solicitor (Home Wilkinson &
Lowry) who will help them form themselves into a Unit Trust.
And you don't have to be a "sophisticated investor" to join a
Private Syndicate.
Once the Syndicate is Formed
From here, Gardner+Lang acts (purely in an advisory role) to
help that Unit Trust acquire a suitable property - for which
Gardner+Lang receives an acquisition fee of generally between
1.25% to 1.5% of the contract price.
On the way through, the Unit Trust pays the usual property
management fee of 3% of the normal tenancy payments for looking
after the property itself.
There is no profit share, no bonus, nor any "kicker" at the
end. At the point of selling, the Unit Trust simply pays the
normal agency selling costs.
Each month, all rentals are sent to an experienced accountant
(Williams & Partners) who … lodges your BAS returns; makes
quarterly distributions to all Unit holders; and prepares year-
end tax returns for the Trust -- for which only normal
accounting fees are charged.
Public Vs Private Syndicates
To summarise … Private Syndicates:
then attract investors into an established Unit Trust) … Private
Syndicates form a Unit Trust only when the investors choose to
do so. Not until the Trust is actually formed, do the members
seek out a property and decide upon its purchase.
If you need some more Details …
Over the past 17 years, we have been able to discover most of
what has (and hasn't) worked for our various clients. And that
has been put together in a simple eBook, which you can download
free from our website.
For more information, you might also like to read through some
of the Syndicate FAQs, which have arisen over the years.
Hopefully, that helps to fill in a few gaps. Because, for the
smaller investor (as a member of a private syndicate), it allows
you to play a role in the purchase of a much larger property --
without having to carry all the responsibility by yourself.
And obviously the Property, Legal and Accounting advisors are
there to help you, all the way along.
Anyway, let's know if you need any further guidance in going
down the path of Syndication.
All the best ... Chris Lang
Hi everyone :
I noticed a few of you picked-up on the topic of Private
Syndicates, and raised several issues.
Perhaps a few points of clarification might be helpful.
ASIC's requirements
grossreal is quite correct in saying there being a limit of "no
more than $2 million" able to be raised by way of equity AND "no
more than 20 people" being involved in each Syndicate.
Otherwise, as a "promoter", you need to go the expensive path of
preparing a Product Disclosure Statement (PDS).
Therefore, so that everyone is quite clear : I am NOT a
"promoter" of Syndicates.
All I do is receive indications from my clients (new and old)
of their desire to join up with other clients; and then, simply
introduce them to an experienced solicitor (Home Wilkinson &
Lowry) who will help them form themselves into a Unit Trust.
And you don't have to be a "sophisticated investor" to join a
Private Syndicate.
Once the Syndicate is Formed
From here, Gardner+Lang acts (purely in an advisory role) to
help that Unit Trust acquire a suitable property - for which
Gardner+Lang receives an acquisition fee of generally between
1.25% to 1.5% of the contract price.
On the way through, the Unit Trust pays the usual property
management fee of 3% of the normal tenancy payments for looking
after the property itself.
There is no profit share, no bonus, nor any "kicker" at the
end. At the point of selling, the Unit Trust simply pays the
normal agency selling costs.
Each month, all rentals are sent to an experienced accountant
(Williams & Partners) who … lodges your BAS returns; makes
quarterly distributions to all Unit holders; and prepares year-
end tax returns for the Trust -- for which only normal
accounting fees are charged.
Public Vs Private Syndicates
To summarise … Private Syndicates:
- Have no promoter (as Public Syndicates do).
- Incur no entrepreneurial fees, or PDS expenses.
- Attract no more costs, than if you were to acquire the
property yourself.
then attract investors into an established Unit Trust) … Private
Syndicates form a Unit Trust only when the investors choose to
do so. Not until the Trust is actually formed, do the members
seek out a property and decide upon its purchase.
If you need some more Details …
Over the past 17 years, we have been able to discover most of
what has (and hasn't) worked for our various clients. And that
has been put together in a simple eBook, which you can download
free from our website.
For more information, you might also like to read through some
of the Syndicate FAQs, which have arisen over the years.
Hopefully, that helps to fill in a few gaps. Because, for the
smaller investor (as a member of a private syndicate), it allows
you to play a role in the purchase of a much larger property --
without having to carry all the responsibility by yourself.
And obviously the Property, Legal and Accounting advisors are
there to help you, all the way along.
Anyway, let's know if you need any further guidance in going
down the path of Syndication.
All the best ... Chris Lang
Hi GSJ :
That's correct. But that doesn't reveal the full story.
You need to fully understand the psychology of "making public"
the Valuation on the website -- when we had advised our clients
the property was now worth considerably more than that.
You see, no valuer is prepared to attribute the full value of a
Permit -- because it would involve making detailed (and possibly
"dangerous") assumptions as to building costs, to arrive at a
potential profit. Therefore, we insisted that the valuer made
clear that the Permit had not been taken into account.
However, it was important for the buying public to have a
respected and independent assessment of current value -- given
that the property was essentially unchanged in appearance, since
its purchase.
So, what we were effectively saying to the buyers was ... "How
much more than $11.2 million are you prepare to pay?"
Therefore, it now came down to a $1.1 million decision, rather
than a $12.3 million decision. And, naturally, people find that
a lot easier to make!
You've got to think of a "Negotiation" as a game. A VERY
serious game … but, nonetheless, it's a game.
All the best ... Chris
Private Syndicates and Leverage
Hi Chris,
Thanks that makes sense.
Also, in my previous calculations I did not take into account leverage!
So, for a purchase price of $7.24 million split between 11 syndicate members, that is $658k per syndicate member.
But, if finance was arranged for the purchase at say 70% LVR, the initial cash/equity input for the syndicate/Unit Trust would be $2.172 million (30% of purchase price) - or just $197k for each of 11 syndicate members - to be involved in >$7 million dollar deal - is this correct?
This 197k is like buying a 1-bed apartment in Melbourne!
The key difference I believe, and perhaps a disadvantage of syndicated investments, is that if the syndicated property increases in value, the members cannot individually borrow against that increase in value - and get say a 'line of credit' - as they perhaps could if an apartment purchased individually had increased in value.
I believe this aspect makes them more suitable to a SMSF.
Is this understanding correct?
Thanks,
GSJ
Hi Chris,
Thanks that makes sense.
Also, in my previous calculations I did not take into account leverage!
So, for a purchase price of $7.24 million split between 11 syndicate members, that is $658k per syndicate member.
But, if finance was arranged for the purchase at say 70% LVR, the initial cash/equity input for the syndicate/Unit Trust would be $2.172 million (30% of purchase price) - or just $197k for each of 11 syndicate members - to be involved in >$7 million dollar deal - is this correct?
This 197k is like buying a 1-bed apartment in Melbourne!
The key difference I believe, and perhaps a disadvantage of syndicated investments, is that if the syndicated property increases in value, the members cannot individually borrow against that increase in value - and get say a 'line of credit' - as they perhaps could if an apartment purchased individually had increased in value.
I believe this aspect makes them more suitable to a SMSF.
Is this understanding correct?
Thanks,
GSJ
Last edited:
Accessing your Capital Growth
Hi GSJ :
The members actually borrowed a little more - but your numbers
are close enough.
Interestingly, the Syndicate members all used their personal
Super Funds for the Investment. (SFs can invest into a "vehicle"
that borrows - provided no one SF has majority control of that
vehicle).
If you read the eBook, you'll see that the Trust Deed (which
HWL have developed for clients over the years) contains a
mandatory 4-year review of the property by members.
That was principally to provide an "exit mechanism" for those
wishing to depart earlier than planned. But that review would
also allow the Syndicate to re-finance, and then look to
purchase a further property.
So, it would work for both individuals and SFs.
Chris Lang
Hi GSJ :
The members actually borrowed a little more - but your numbers
are close enough.
Interestingly, the Syndicate members all used their personal
Super Funds for the Investment. (SFs can invest into a "vehicle"
that borrows - provided no one SF has majority control of that
vehicle).
If you read the eBook, you'll see that the Trust Deed (which
HWL have developed for clients over the years) contains a
mandatory 4-year review of the property by members.
That was principally to provide an "exit mechanism" for those
wishing to depart earlier than planned. But that review would
also allow the Syndicate to re-finance, and then look to
purchase a further property.
So, it would work for both individuals and SFs.
Chris Lang
Thanks Chris,
So re-financing is possible at the review date, for expansion of the syndicates portfolio - if other syndicate members are in agreement, which is good as you ('individually' or your SMSF) won't necessarily lose that ability to leverage into other investments that is a great advantage of investing in real estate.
Overall, a very attractive investment vehicle.
GSJ
Last edited:
An Ashes' Treasure
Hi everyone :
I'm not sure if any of you are a mad keen cricket fan? But
if you are … I've just made a posting on my blog, which might
interest you.
It's about a fascinating piece of Ashes' history I came across.
Anyway, go Aussies this weekend!
Regards … Chris
Hi everyone :
I'm not sure if any of you are a mad keen cricket fan? But
if you are … I've just made a posting on my blog, which might
interest you.
It's about a fascinating piece of Ashes' history I came across.
Anyway, go Aussies this weekend!
Regards … Chris
hi chris
thanks for that explanation with regards to your involvement in this field and I wish you well as it seems your system works very well I am very similar but I take an active part in the project not manage it ( but am looking at that with the current project) as you a step back from investing directly you can say a bit more then myself but from what you have posted is correct.
I will read with interest wht people have to say with regards this post as there is alot of very godd information in it.
thanks for that explanation with regards to your involvement in this field and I wish you well as it seems your system works very well I am very similar but I take an active part in the project not manage it ( but am looking at that with the current project) as you a step back from investing directly you can say a bit more then myself but from what you have posted is correct.
I will read with interest wht people have to say with regards this post as there is alot of very godd information in it.
Matrix Burwood - few more questions...
Hi Chris,
Just a couple more questions re. Matrix Burwood:
(1) How did you work out the initial valuation of $7.75 million for the property? - (ie. before the due diligence findings)?
Using comparable sales, or some other method or combination of methods?
How did you explain to the 'wealthy amateurs' why you felt the property was worth this much? - given that some of them may not have had any experience with valuing commercial property before, and would want to be careful that the syndicate and therefore themselves were not overpaying for the property, especially given the substantial size of their individual investments in the syndicate?
I'm sure some of them may have just trusted your judgement, but there must have been others who wanted a more detailed explanation.
Is it possible to illustrate this in a simplified manner using figures of relevant comparable sales - or however you worked it out?
Valuing residential property is easy enough, and most here on the forum would be able to do so to an extent using some recent comparable sales.
Is it much more complicated with commercial property? Obviously the lease itself plays a significant part in the valuation here.
(2) How did you assess the development potential of the property prior to making the initial offer of $7.75 million?
Did you do some formal analyis prior/'feasability study'? - like the CKC market analysis, which I believe was done prior to sale.
Or was it based on your experience?
Apart from the development of the vacant land, did you make the offer thinking that you may also be able to re-develop the existing buildings?
Obviously you were able to in the end, but you mention that council initially felt the building should be demolished.
Thanks,
GSJ
Hi Chris,
Just a couple more questions re. Matrix Burwood:
(1) How did you work out the initial valuation of $7.75 million for the property? - (ie. before the due diligence findings)?
Using comparable sales, or some other method or combination of methods?
How did you explain to the 'wealthy amateurs' why you felt the property was worth this much? - given that some of them may not have had any experience with valuing commercial property before, and would want to be careful that the syndicate and therefore themselves were not overpaying for the property, especially given the substantial size of their individual investments in the syndicate?
I'm sure some of them may have just trusted your judgement, but there must have been others who wanted a more detailed explanation.
Is it possible to illustrate this in a simplified manner using figures of relevant comparable sales - or however you worked it out?
Valuing residential property is easy enough, and most here on the forum would be able to do so to an extent using some recent comparable sales.
Is it much more complicated with commercial property? Obviously the lease itself plays a significant part in the valuation here.
(2) How did you assess the development potential of the property prior to making the initial offer of $7.75 million?
Did you do some formal analyis prior/'feasability study'? - like the CKC market analysis, which I believe was done prior to sale.
Or was it based on your experience?
Apart from the development of the vacant land, did you make the offer thinking that you may also be able to re-develop the existing buildings?
Obviously you were able to in the end, but you mention that council initially felt the building should be demolished.
Thanks,
GSJ
Matrix queries
Hi GSJ:
Apologies for not coming back to you on your further queries
before now.
1. The purchase price of $7.75 million.
Yours is a simple question -- but the answer is somewhat more
complex.
It simply came down to establishing an underlying figure for
the property -- based upon a comparison of yields and $/psm of
net lettable area (NLA), for sales of similar properties. And
these may not have necessarily been within the immediately
surrounding area.
Hardly any sales would have had developable spare land --
certainly not to the same extent as this property. Therefore,
in the end, it comes down to experience in making the final
analysis.
2. Assessing the development potential.
Initially, we based the additional price paid upon developing
townhouses on the vacant land -- because of the direct access to
a road on the rear boundary.
That would have been a quicker and easier way to release the
value tied up in the vacant land. But, the Council insisted
the property retain its commercial use.
Hence the permit obtained.
3. The existing buildings.
We immediately saw the added potential of reconfiguring the
existing structure. However, the extent and final layout would
depend upon our success in re-negotiating a couple of the leases
-- to allow for early re-development.
Mentioning the Council's initial lack of vision was not
intended as a criticism. In today's 'disposable world', most
people tend to find a clear slate easier to deal with.
With 15,000m2 of very solid buildings already onsite, it seemed
a waste of time and money to simply demolish and rebuild them --
albeit "as new". This may not always work; but you need to be
open to the possibility -- because it's a far less risky path to
tread.
Hopefully, this covers what you were after.
Regards ... Chris
Hi GSJ:
Apologies for not coming back to you on your further queries
before now.
1. The purchase price of $7.75 million.
Yours is a simple question -- but the answer is somewhat more
complex.
It simply came down to establishing an underlying figure for
the property -- based upon a comparison of yields and $/psm of
net lettable area (NLA), for sales of similar properties. And
these may not have necessarily been within the immediately
surrounding area.
Hardly any sales would have had developable spare land --
certainly not to the same extent as this property. Therefore,
in the end, it comes down to experience in making the final
analysis.
2. Assessing the development potential.
Initially, we based the additional price paid upon developing
townhouses on the vacant land -- because of the direct access to
a road on the rear boundary.
That would have been a quicker and easier way to release the
value tied up in the vacant land. But, the Council insisted
the property retain its commercial use.
Hence the permit obtained.
3. The existing buildings.
We immediately saw the added potential of reconfiguring the
existing structure. However, the extent and final layout would
depend upon our success in re-negotiating a couple of the leases
-- to allow for early re-development.
Mentioning the Council's initial lack of vision was not
intended as a criticism. In today's 'disposable world', most
people tend to find a clear slate easier to deal with.
With 15,000m2 of very solid buildings already onsite, it seemed
a waste of time and money to simply demolish and rebuild them --
albeit "as new". This may not always work; but you need to be
open to the possibility -- because it's a far less risky path to
tread.
Hopefully, this covers what you were after.
Regards ... Chris
hello
just another 'hasnt been mentioned yet' resource. A FINSIA course has a subject on commercial property investing http://www.finsia.edu.au/Education/Courses/CoursesOffered/GDAFI/Outline/E133 and the notes for that subject would probably be of interest to people here, beacuse they are a) australia specific b) mostly up to date and c) fairly indepth (i.e. the cover DCF and other types of valuations). i have completed this unit and i found it very useful.
now, strictly speaking you need an undergrad degree to enrol in this course. however, you can enrol before providing proof of your undergrad degree. so, if you were interested in obtaining the notes, you could enrol and pay for the unit E133, the notes will be sent to you, and then you can withdraw your enrollment. i think they might even just sell the notes for about $400 i think, you can always call and find out.
just another 'hasnt been mentioned yet' resource. A FINSIA course has a subject on commercial property investing http://www.finsia.edu.au/Education/Courses/CoursesOffered/GDAFI/Outline/E133 and the notes for that subject would probably be of interest to people here, beacuse they are a) australia specific b) mostly up to date and c) fairly indepth (i.e. the cover DCF and other types of valuations). i have completed this unit and i found it very useful.
now, strictly speaking you need an undergrad degree to enrol in this course. however, you can enrol before providing proof of your undergrad degree. so, if you were interested in obtaining the notes, you could enrol and pay for the unit E133, the notes will be sent to you, and then you can withdraw your enrollment. i think they might even just sell the notes for about $400 i think, you can always call and find out.
The recent Property Workshop
Hi GJS :
It's a pity you couldn't make to the Workshop -- because the
response to it was rather good.
Yes, we did tape it; and it is now being edited. As soon as
I have finalized the the actual cost (which should be this
week) ... I'll notify you on this forum, of the posting on my
blog.
All the best ... Chris Lang
Hi GJS :
It's a pity you couldn't make to the Workshop -- because the
response to it was rather good.
Yes, we did tape it; and it is now being edited. As soon as
I have finalized the the actual cost (which should be this
week) ... I'll notify you on this forum, of the posting on my
blog.
All the best ... Chris Lang
