Many people think property syndicates and property funds are the same thing, but they’re fundamentally quite different, with different advantages and risks.
Property syndicates and property funds are both investment vehicles used to pool capital from multiple investors to invest in real estate assets. Both typically aim to generate cash returns and growth in investment value over time.
A property syndicate is a direct property investment – typically just one property leased to one or more tenants, and many investors become part-owners of that property. Returns come from the rent and capital growth, after costs.
With an unlisted and diversified direct property fund like those managed by PMG, you also invest alongside a pool of other investors, but across many properties, property types, locations, and tenants from different sectors. That means your interests are spread across more properties and tenants.
So how do they compare?
Structure
There are a few fundamental differences in how property funds and syndicates are structured.
In a syndication, investors own a portion of a specific property or properties and have more direct oversight to authorise decisions.
With property funds, the specific fund invests in a portfolio of properties that are typically managed by a professional fund manager, who then makes investment decisions on behalf of investors against an established and agreed strategy.
Diversification and scale
Syndicates own a single property or a small number of properties with less diversification based on location, property type and industry, while property funds are focused on spreading risk through greater diversification, often investing in properties across different locations and industries.
Liquidity
Both syndications and commercial property funds (if unlisted), face some restriction in terms of liquidity, as property is typically a longer-term investment and liquidity requires the sale of assets. However, syndication offers less liquidity for investors, as it solely relies on the sale of the sole asset, while property funds can provide more liquidity options given the ability to flex asset allocation and borrowing across many assets.
Minimum investment
Syndicates are often limited to wholesale investors, which has a higher minimum Dollar entry point, depending on the value of the property and number of investors. Property funds can have either wholesale or retail investment options, with retail funds often having a lower Dollar entry point, and higher levels of regulation overseen by the FMA, to provide investors with:
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 licensed under the Financial Markets Conduct Act 2013* (FMCA 2013).
PMG is one of only a handful of unlisted property fund 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 returns in the long term.
Taxation
Some property funds can be structured in a more tax-efficient manner, depending on the fund's investor base, structure and intent. For example, PMG's retail funds are all multi-rate Portfolio Investment Entities for tax purposes – or PIE funds, which offer some advantages in terms of the tax investors pay on their investment income.
You can learn more about the intricacies of tax in commercial property investing here.
Disclaimer: The information in this blog is general and was current on 23 April 2024. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013 and does not take your individual circumstances and financial situation into account. PMG does not provide financial advice. Please seek advice from a licenced financial advice provider before making any investment decisions.
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