Property syndicates are likely to be a thing of the past, according to Australian Unity Investments (AUI) head of property Martin Hession.
Hession said while the syndicate structure has worked well in the past, it always had “limitations that, in the current market, can cause concern for investors”.
These concerns include a lack of liquidity and diversification, Hession said, and would likely spell the end for this type of property investment.
Hession said single asset, fixed term vehicles are no longer suitable in today’s environment, with investors demanding diversity and liquidity.
As such, AUI is seeking investor approval to convert five of its existing retail property syndicates and trusts into a single fund.
The proposal would create a $400 million retail property fund — one of Australia’s largest unlisted retail property funds, the group said. The fund would initially hold seven properties in New South Wales, Queensland, Western Australia and Victoria.
Hession said while the move reflects the need for improved liquidity and diversification, it would also result in better lending measures and reduce income volatility.
The proposal will be voted on by investors at meetings to be held at the end of November.
The influence from the prevalence of platform use also played a part, with fund managers needing to cater to planner demand for easy accessibility.
“Research confirms our view that fixed term syndicates are no longer as popular or as desirable for investors as they once were,” Hession said.
Under the proposal, investors will exchange their current units for units of equivalent value in the stapled Retail Property Fund without triggering material tax consequences and without interrupting distributions. There will also be an initial withdrawal offer (subject to a maximum cap of $20 million).
AUI head of portfolio strategy Kirsty Dullahide said the group had mitigated the shocks of the credit crunch by having nil or minimal exposure to hedge funds, sub-prime debt or listed property. Dullahide said one positive by-product of the credit squeeze was that it had saved the property market from any looming oversupply of property.
Dullahide said in the current circumstances banks had been “extremely well behaved”.
“You haven’t seen too many fire sales,” Dullahide said, noting that as a result the underlying values the property market had not been adversely affected.
