Investors Syndicates...how do they work?

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From: Dave :)


Hello everyone.

I'm hoping to get some constructive feedback from those of you who have experience in this area, because I don't. I know nothing about how investor syndicates work, but am willing to start a huge learning curve.

I know I am WAY out of my league here, and possibly overly naive, but I don't want to ignore a potentially huge opportunity just because it seems to hard. I'd rather try all avenues and then fail, then just walk away and throw it into the 'too hard' basket.

Say there was a prime piece of dirt available in an awesome location. Asking price is $2.5m. The total area of the land is 3700m2. About half of this is occupied by commercial shops, some of which are vacant. The current annual income from rent is about $128,000. Potential for redevelopment is huge. The council has indicated it would prefer the site to be sold to investors/developers for the purpose of providing exclusive, multi-storey residential accommodation. So, re-zoning/planning shouldn't be as painful as it normally is.

There are two offers before the vendor now. One for $2.2M and one for $2.3M. I requested to see these offers for myself, just to make sure. Both these offers were by syndicate groups of investors, planning to demolish the commercial shops and redevelop the whole site into apartments. They WERE'NT subject to planning/permits - anything.

The challenge? How do you properly structure a syndicate of investors to buy this? A few people I know are interested, but I have no idea how to do it. One of the interested parties is a developer, a few are private investors, one is an architect, one is a lawyer...etc. What makes it even more complex is that the amount of equity available from investors all differs.

If any of you 'big gun' investors can offer me any advice, words of caution, or whatever, I'd really appreciate it. If I don't learn something today, I'd prefer I had stayed in bed.

Cheers,

Dave
:)

p.s The site is not on the market publicly. If it doesn't sell to interested parties, the vendor will put it up for auction. Personally, I think it's worth more than $2.5M.
 
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Reply: 1
From: Paul Zagoridis


I'd think the lawyer investor you've got interested should be able to help there. If he can't you should definitely have a property savvy lawyer on your side.

I know the theory and my dad has been involved in a couple of syndicates. But nothing I can provide concrete feedback on.

Regards

Dreamspinner
 
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Reply: 2
From: Dave :)


Thanks Mike and Paul,

Hey, at this stage, I'm even open to the 'theory' of how this works - at
least it'll give me somewhere to start.

The leases on this site are not a problem - only one of the commercial
tenants has a long term lease. I've found out, however, that the owner
can sell at any time and give them 60 days notice to vacate due to
frequent rental payment defaults.

One party can only afford to buy the land, the other to fund all the
'pre-construction' work, the other find the resources to build the
thing...but how do you structure this sort of arrangement in a legally
binding way where profits are equitably split according to the level of
investment/work? So many questions....*grins*

If anyone knows of someone, not necessarily a contributor to this forum,
who has experience in this, please contact me.

Cheers,

Dave
:)

(looking forward to that bottle of red tonight...)
 
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Reply: 3
From: Michael Yardney


Hi David
Thanks for emailing me this question that you posted on the forum.
As you know I have put together a number of syndicates just like this. That’s what we do and allow ordinary investors to become property developers.
Now that I’ve put in my plug lets get down to the advice….
You say the council has indicated they would prefer the site to be sold to developers to provide multi storey development.
The first rule is don’t believe anything the council says. In fact this doesn’t sound like what a council would say, more like what an agent would say. I deal with councils all day for town planning issues and they change their minds. This means while you draw up the plans the “goal posts” move.
DON’T underestimate the difficulty getting town planning permits.
It could easily take a year or more and if you are intending to change the use of the land (commercial to residential) you may now have problems with the new town planning codes which place great emphasis on preserving neighborhood character.
Before you buy anything you need to do very detailed feasibility analysis and get a good team of consultants including an experienced town planner.
With regards to the joint venture syndicate, we use a very detailed, 30 odd page, joint venture agreement which protects all the joint venturers. You need a very experienced solicitor for this one.
So there are lots of challenges….but that’s the road to the rewards. Do your homework carefully before you commit yourself.
Can you get an option over the land so that it is taken off the market while you do your due diligence?

Michael Yardney
Metropole Properties
 
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Reply: 3.1
From: Dave :)


Thanks Michael.

I have asked about the 'option' already. The other two offers on the property are subject to nothing - straight out offers. They only requested full access to the property to commence feasibility tests/works prior to settlement. So, why would the vendor agree to an option? Please let me know if there's something I'm just not 'getting'...

Thanks,

Dave
:)
 
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Reply: 3.1.1
From: Michael Yardney


David
There is "nothing you're not getting"
It probably means the other parties who have made an offer are "smarter than you" or "dumber than you" and I mean this in the nicest way.
They are either experienced developers and know their figures well.
On the other hand....
They don't know what they don't know and are going in without the correct homework and will go broke.
For a first time syndicate maybe you should try and buy a block of land with a town planning permit. This takes out one level of risk (even though the profit is usually much less ....you can make good money buying a block of land and increasing its value with a town planning permit.)
After you have done a few developments then go for a block without permits. One where you are looking for a change of use (commercial to residential etc) is even more tricky.
I will be discussing many aspects of developing property in my forthcoming FREE seminar on July 17th. Anyone interested can email me for details
Michael Yardney
Metropole Properties
 
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Reply: 3.1.1.1
From: Dave :)


Hi Guys,

Thanks Michael and the others who have contacted me offline. I got quite a bit of feedback from my earlier post, I now have a good idea how this works.

There are a lot opportunities out there. It just seems like those in the know capitalise on them while the uninformed just watch them do their thing, make a stack of $$ while we turn green with envy.

I would like to know if anyone would be interested in creating a syndicate group that bought land and developed property that could be sold or held long term. I have enough trustworthy contacts in the industry to ensure it would work - all I need now to turn this from theory into practice is enough investors willing to join in with me.

If this is something you may consider, please get in touch with me.

Cheers,

Dave
:)
 
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Reply: 3.1.1.1.1
From: Tom Siviou


Dave,

sounds good, i'd be very interested in this
 
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