HIGHER interest rates coupled with competition for quality property and stringent rules imposed under the Managed Investments Act have contributed to a slow down in property syndications being formed, according to a report by syndication manager Westpoint
HIGHER interest rates coupled with competition for quality property and stringent rules imposed under the Managed Investments Act have contributed to a slow down in property syndications being formed, according to a report by syndication manager Westpoint Management Limited.
The Perth-based company’s six-monthly Property Syndication Issues report said syndications were likely to lose favour during the next year if interest rates continued to rise.
During the 1999-2000 fiscal year, 24 syndications occurred compared to 29 for the previous year.
Property assets under management by syndicates comprising passive investment and non-listed trusts total more than $2 billion.
In addition to these managed Investment Act investments, there had been numerous excluded offers and development syndications, bringing the total value to between $3 and $4 billion, the report said.
It said that property syndications were more susceptible to interest rate movements than Listed Property Trusts, because of their higher level of gearing.
The majority of syndicates have gearing of between 60 and 65 per cent.
LPTs generally have a gearing of between 20 and 30 per cent.
Westpoint Property Funds Management managing director Richard Beck said LPTs were often lumped in with shares and acted like shares with greater price volatility that often did not reflect the value of the property.
Syndications, however, were a form of direct investment into a property, meaning the returns were often higher, less volatile and less susceptible to market sentiment.
Because of this, Mr Beck believes syndication should hold up as more people leave the stock market to enter property investments.
Yields also have dropped since syndications emerged three years ago as purchase prices often rose.
“This trend is a result of the maturity of both the industry and property market. Syndications are now faced with a far more competitive market than that which existed when the industry started to develop,” the report said.
“Additionally, quality property at prices which enable fund managers to package attractive syndication investments are becoming increasingly difficult to secure.”
In 1997 only five property syndications were formed to purchase property valued at about $170 million.
Last year this had risen to 24 syndications, purchasing property valued at $729 million with almost $400 million coming from equity raised.
Westpoint believes that a successful syndicator needs to be linked to a property developer with a proven capability to source, acquire and add value to the property.
Syndicates were also turning to buying “second tier” properties due to the limited supply of A-grade properties.
“Often they are older retail shopping centres, and all too frequently no or insufficient capital expenditure has been allocated to enable the centre to retail its competitive edge,” the report said.
The Perth-based company’s six-monthly Property Syndication Issues report said syndications were likely to lose favour during the next year if interest rates continued to rise.
During the 1999-2000 fiscal year, 24 syndications occurred compared to 29 for the previous year.
Property assets under management by syndicates comprising passive investment and non-listed trusts total more than $2 billion.
In addition to these managed Investment Act investments, there had been numerous excluded offers and development syndications, bringing the total value to between $3 and $4 billion, the report said.
It said that property syndications were more susceptible to interest rate movements than Listed Property Trusts, because of their higher level of gearing.
The majority of syndicates have gearing of between 60 and 65 per cent.
LPTs generally have a gearing of between 20 and 30 per cent.
Westpoint Property Funds Management managing director Richard Beck said LPTs were often lumped in with shares and acted like shares with greater price volatility that often did not reflect the value of the property.
Syndications, however, were a form of direct investment into a property, meaning the returns were often higher, less volatile and less susceptible to market sentiment.
Because of this, Mr Beck believes syndication should hold up as more people leave the stock market to enter property investments.
Yields also have dropped since syndications emerged three years ago as purchase prices often rose.
“This trend is a result of the maturity of both the industry and property market. Syndications are now faced with a far more competitive market than that which existed when the industry started to develop,” the report said.
“Additionally, quality property at prices which enable fund managers to package attractive syndication investments are becoming increasingly difficult to secure.”
In 1997 only five property syndications were formed to purchase property valued at about $170 million.
Last year this had risen to 24 syndications, purchasing property valued at $729 million with almost $400 million coming from equity raised.
Westpoint believes that a successful syndicator needs to be linked to a property developer with a proven capability to source, acquire and add value to the property.
Syndicates were also turning to buying “second tier” properties due to the limited supply of A-grade properties.
“Often they are older retail shopping centres, and all too frequently no or insufficient capital expenditure has been allocated to enable the centre to retail its competitive edge,” the report said.
