Proportionate ownership

[Maccachic]

Is anyone involved in these?

I was at a talk yesterday about them and they seem interesting.

However how did you complete your due diligence?

[Ivan McIntosh]

I have put them together, on the legal side, for various retirement home/hospital acquisitions.

Hard work doing due diligence if you're an investor. You are rather reliant on the valuation and other information disclosed in the relevant offer docs. There generally isn't a property familiar agent to go over the ground with, just a bunch of financial advisors. Best to ask direct questions of the promotors and conduct your own due diligence on the docs they provide.

[Ivan McIntosh]

PS The big dificulty with proportional ownership schemes is liquidity...that plus management companies sucking all the cash out. Once you're in, it isn't easy to find someone to sell to. Treat them in your mind as long term holds, or don't go in, says I.

[Maccachic]

This one is 6% of rental recieved, however a quick flick through the document showed a clause that if the place is untenanted they may chargee reasonable fees for their work, which it stated would be billed at $200 per hour.

No condition survey docs on file and for a $25,000 share it would be costly to do a condition survey.

[buxlo122]

You are better off to invest in Listed Property Trusts. Heaps of liquidity and similar returns.

[Tan]

I'd look at the average lease term - the longer the better, and quality of tenant. As above, check liquidity. I think they can be good, but the more you know about the syndicate the better - both management (who mainly, which tells you more than wading through the details) and the leases. They have been known to be quite bad too, that's why they aren't called syndicates openly any more.

I'd do it with small-medium companies where I knew of the boss, but others prefer larger sizes.

[Re@der]

I am in a company in Wellington which has 19 shareholder/directors. Building gives 8.5% yield. We get 10% as leverage is just under 50%. Major tenant is a national blue chip company with a 9 year lease, Westpac is a minor ground floor retail tenant.
We pay swap rates plus a commission to the bank so company management really work our money hard.

Did due diligence by checking on previous buildings that the company management group had set up.
Also followed and checked as much information as I could get on the particular building to check purchase price and likely yield from similar buildings

[Maccachic]

http://www.stuff.co.nz/business/money/7416901/Investors-advised-to-be-cautious

[eri]

PS The big dificulty with proportional ownership schemes is liquidity...that plus management companies sucking all the cash out. Once you're in, it isn't easy to find someone to sell to. Treat them in your mind as long term holds, or don't go in, says I.

as above

nowadays you need to avoid as many middlemen as you can

because if there's not enough to go round

guess who misses out...

[Bob Kane]

as above

nowadays you need to avoid as many middlemen as you can

because if there's not enough to go round

guess who misses out...

That's right.
Buy the $8 million building with the 10 year lease to Bunnings by yourself and keep all the profit.
No specialist commercial property managers involved - think of the savings you'll make!

[eri]

my bad

missed that this was commerical

[speights boy]

FMA proposes overhaul of rules around property proportionate ownership schemes

The Financial Markets Authority has today announced its proposal to overhaul the class exemption notice for Real Property Proportionate Ownership Schemes.

https://nzx.com/regulators/FMA/announcements/226760

[Maccachic]

Waitomo Properties managing director Steve McLennan said he bought the Tauranga office building for $1.1 million - nearly $3 million less than its rating valuation.

The sale to the Hamilton-based company represented a massive loss to the former owners, a syndicate of 34 investors who paid nearly $9.7 million in 2006

http://www.nzherald.co.nz/bay-of-plenty-times/news/article.cfm?c_id=1503343&objectid=11386730

[Wayne]

I suspect there would be problems getting 34 people to agree on the direction the building should take
ie how to increase it's worth with upgrades (investment).

[speights boy]

Crikey.
That's one severe haircut.