Commercial Property Funds vs Syndicates

Comparing the benefits and the risks.


SYNDICATES

What is a property syndicate?

A property syndicate is a direct property investment, which is typically a single property. The property is leased to one or more tenants, and multiple investors become a part-owner of that property. Investment returns can then come from the rental income and capital growth after any deducted costs.


What are the benefits?

Investing in a syndicate can offer good gross cash returns when compared to other asset classes.


What are the risks?

Property syndications have been popular over the last few decades. With numerous offerings in the marketplace, investors can be fuelled by the offer of better returns when compared to bank term deposit rates, but it is equally important to pay attention to the risks.

Over time, markets and global economies have become more volatile, as seen with the Asian Financial Crisis, the Global Financial Crisis and now COVID-19. Because of these events, the syndication model has in some cases shown weaknesses due to its lack of diversification.

The potential risks to syndicate returns relate to tenant vacancies, a tenant’s failure to pay rent or outgoings, increasing fees, interest rates, and general operational costs regarding maintenance and repairs. If a tenant cannot pay rent for any reason, investors may notice an impact on their returns. These risks are similar for other property investment models like funds but they are not as reliant on individual tenants – the risks are instead spread across multiple tenants, properties, locations and sectors. Furthermore, syndicates typically have no fixed term. As a result, there may be a reduced opportunity for liquidity (for you to sell your investment). It may also require further investment.


FUNDS

What is a direct property fund?

A diversified and unlisted direct property fund can provide investors with the benefits of investing alongside a pool of other investors across multiple properties, property types, locations and tenants from different sectors. This diversification is key in providing investors with greater confidence in long-term, reliable and sustainable income. The investments’ risks and exposures are then spread across more properties and tenants than if they were a syndicate property investment.


What are the benefits?

There are two key benefits to investing in a directly-held unlisted property fund:

1. Reliable cash returns – as there are typically many properties and tenants in a fund.

2. Liquidity – funds generally have a smaller minimum investment requirement, which gives you access to a larger pool of potential buyers when you sell. In 2013, PMG evolved its strategy to the fund model to enhance the investment offerings’ robustness and provide greater choice and income resilience to our investors. PMG also offers a secondary market facilitation service for investors to sell some or all of their shares or units if they wish.


What are the risks?

Should a single tenant or property within a fund not perform as expected, the other properties and tenants can help reduce the impact to the overall portfolio and, therefore, investor returns. Retail and wholesale investment schemes (like what PMG offers), and licensed scheme managers (of which PMG is one), are overseen by a statutory supervisor and the Financial Markets Authority (FMA). This means, by law, managers of these schemes need to provide a high level of transparency on their investment offers and are closely monitored, which provides more regulatory protection for investors.


Not all property funds managers are created equal.

If you are placing your hard-earned cash in the hands of a fund, it’s important to choose a manager with a proven history of performance*, with strong governance, and is ideally licensed under the Financial Markets Conduct Act 2013* (FMCA 2013).

PMG is one of only a handful of unlisted property funds managers to hold a ‘Managed Investment Scheme’ licence under the FMCA 2013. As a responsible manager, we carefully select properties for our funds, and ensure they align with our funds’ objectives and strategy to deliver regular and reliable returns in the long term.


“PMG looks to establish each investment fund with multiple quality properties to produce diversity of buildings and tenants, which creates a robust investment vehicle offering greater economies of scale, reliable cashflows, and improved liquidity.” – Research IP*


Information is correct as of 1/04/2021 and contains general commentary and views from PMG. Any information provided in this article is provided for information purposes only, is not intended to be relied upon, and should not be construed as financial advice. Prospective investors are recommended to seek professional advice from an Authorised Financial Adviser who takes into account their personal circumstances.

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Meet your investor relationships team

With a range of investment funds to suit New Zealanders of all ages and stages, it's easier than you may think to invest. Give one of our knowledgeable pmg Investor Relationships Managers a call for a no-obligation chat, or visit our FAQ page.

Matt McHardy
Matt McHardy

Head of Investor Relationships – Central and Lower North Island

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Rory Diver
Rory Diver

Investor Relationships Manager – Waikato, Auckland and Northland

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Ben Cant

Investor Relationships Manager - South Island

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Matt Topham

Investor Relationships Associate - Tauranga

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Investor Relationships Support

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4 steps to investing with pmg

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1. Reach out

To start investing with PMG, register your contact details via phone or email. Alternatively, make an enquiry via our contact form and we’ll have someone from our Investment Relationships Team meet you.

Watch PMG’s history video to learn more about our approach to commercial property investments, along with the five funds within the company. We encourage you to speak with a friend or family member who knows us, and we also recommend you chat with a Financial Advice Provider for specific advice to suit your unique situation.

Look through our current investment offers to find the right PMG fund to suit you. After downloading, carefully review the associated Product Disclosure Statement(s) for the offer(s) you’re interested in. Investing with us is straightforward – either apply online using our secure and confidential investor portal, via the printable form on each fund page, or reach out to your local PMG office to fill out the relevant paperwork.

Our lines of communication are always open. If you have any questions, reach out to your local PMG Investor Relationships Manager. Whether it’s a general catch up or discussion around the latest developments with your investment, we’re here to help.