Property syndicates making a comeback?

Property syndicates were once a popular means to invest in direct property, but could they be making a comeback?

A lack of liquidity in unlisted open-ended funds, combined with attractive buying opportunities, could leave room for property syndicates to resume centre stage, according to Standard & Poor’s (S&P) Fund Services.

“Syndicates provide a commonsense solution to one of the biggest issues facing open-ended unlisted property funds. The term-based structure recognises that … direct property is inherently illiquid, and that an investment should be for the medium to long term,” said S&P fund analyst Kelly Napier.

Once popular from the mid-1990s to the early 2000s, fixed-term syndicates fell out of favour when open-ended unlisted property trusts arrived on the scene.

This new vehicle surged in popularity off the back of its main advantage: ease of entry (and, more importantly, ease of exit).

This advantage proved to be a major shortcoming in late 2008, when fund managers had difficulty meeting redemption requests.

But are investors ready to enter direct property syndicates again?

According to Napier, the ability to raise capital in an environment where leverage is both difficult to obtain and expensive will be critical to the success of syndicates.

“So far, investors seem lukewarm. We’ve seen instances where syndicates have failed to get off the ground or capital-raising periods were extended. It could just be a matter of timing, or investors could have an aversion to term structures,” said Napier.