Property Syndicate Risks (and Property Fund Due Diligence #2)

What is a property syndicate and more importantly, what should you watch out for when considering investing in a property fund? Syndicated property investments are common for commercial property and property development. 🔔 SUBSCRIBE: https://bit.ly/2ABxWz1

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Read our disclaimer: all information about property syndicates is general and does NOT form any part of financial advice. ❗DISCLAIMER: https://bit.ly/2zldMJh

Following on from part one, the next areas to start conducting due diligence on property syndicates is the feasibility.

I do this by reconstructing the financials using my model. I confirm the total value of the project. Then deduct expenses to work out the net sales revenue of the property fund.

I then benchmark my costs against the syndicator's numbers. The land cost, stamp duties and settlement costs are straight forward. The consults fees, site works and construction costs need to have some more in depth due diligence as these make up a large proportion of the project's expenses.

A trick with confirming the property syndicates' construction numbers is to use a $/sqm. It is also worth considering the funding assumptions by checking the costs, understanding the loan to cost ratio and the loan to end value. Pre-sales of the project's units is an area which impacts the delivery timing of the development.

Once you understand the financials, the next area to consider is the timeline and delivery. It is prudent to know the average time each step in the development process to see what might be a little too optimistic.

After all the desk-bound due diligence of the property syndicate, it is worthwhile to head out on-site to check the location. You should consider power lines, main road, adjoining property and other detracting factors.

Looking at the land itself, I do over more factors in my on-site development due diligence video.    • Avoid Expensive Mistakes: On-Site Due Dili...  

Finally, the end sale value is worthwhile considering. I create a list of comparable properties sold, withdrawn and for sale. I go past these to confirm how they relate to the product of the property syndicate.

The other questions to ask the fund manager include:
copy of the trust deed if it is a unit trust;
any material contracts such as the project management agreement;
Seeing how much the promoter is personally investing; and
Confirming what other projects they have completed.