Level 9, 30 Collins Street Melbourne 3000 Phone: Fax: # On the Internet you can visit...

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1 Level 9, 30 Collins Street Melbourne 3000 Phone: Fax: # On the Internet you can visit...

2 CONTENTS What exactly is a Property Syndicate? Here s a little Background The Property Investment Market How to avoid all those Upfront Fees Timing is Everything! The Pitfalls of Public Syndicates What might be your concerns? There had to be a Better Way The Upfront Fees for a Private Syndicate Comparing Public and Private Syndicates Selling your Equity in the Syndicate The Profile of a Successful Private Syndicate How do You progress things further from here?

3 Everything about Private Syndicates What exactly is a Property Syndicate? A Syndicate is defined by the Australian Direct Property Investment Association as A joint purchase by a group of investors who come together to pool their funds to purchase and hold property. In other words: The Idea is to bring together various Friends, Family members, or Groups of like minded Investors who are seeking to achieve a common investment goal. Australia has thousands of public syndicates investing in office towers, shopping centres, industrial facilities, private hospitals, kindergartens, hotels, even in residential development and mezzanine debt (for those who like a higher risk and higher reward). Public syndicates can have up to investors involved. Basically, a syndicate is a managed, unlisted, fixed-term investment in a commercial property. However, the focus of this ebook is upon Private Syndicates with no more than 20 people, and raising a maximum of $2 million. Here s a little background Gardner+Lang s involvement with private Syndicates started in 1990 where we found ourselves being asked by our clients to bring together members of various families, and groups of like-minded investors. They were all wanting to invest after the property crash, and felt they could buy better if they were to pool their funds. And, of course, they were right.

4 Everything About Private Syndicates Page 4 Over $70m Large Institutions $70m Public Syndicates $20m $8m Small Institutions $2m to $5m Private Syndicates $1.5m Wealthy Individuals An Overview of the Property investment Market How to avoid all those Upfront Fees Over the past 12 to 15 years, we ve acted for all types of syndicate groups. And that has enabled us to observe the various ways they operate. We ve been able to glean what seems to work best for the actual investors involved; and, more importantly, what tends to cause them concern. For example: Back in the late 1980 s, we acted for one public-company client to acquire a sizeable office investment, under a contract with a 3-month option period. They needed the option to allow them enough time to round up the numerous investors who would contribute the required equity. Because there were far more than 20 investors, the ASIC guidelines required the public company to expend around $150,000 to prepare a formal Prospectus before they could actually invite investors to become involved. [Now it s called a Product Disclosure Statement which could cost anywhere between $250,000 to $350,000 to produce.]

5 Everything About Private Syndicates Page 5 Timing is Everything! It soon became apparent that the public company was struggling to achieve the necessary equity contributions, before the 3-month option was due to expire. So we found ourselves having to extend the option by a month, and also become involved in the actual equity raising. It was either that, or run the risk of the acquisition not proceeding; and us not getting paid. The Pitfalls of Public Syndicates In addition to the usual Acquisition fees, a Public Syndicate will also generally charge you for $ Preparing a Product Disclosure Statement, $ A rather hefty entrepreneurial fee, $ Various other Establishment Costs, plus $ Equity-raising fees to Financial Planners & Accountants. Therefore, when you add up all the fees: If 85% of your equity actually makes it to the property purchase that would have been a good outcome. And it is this level of upfront fees that caused us to feel uncomfortable! Furthermore, by requiring a 3 to 4-month option, it meant you were clearly at a disadvantage in being able to negotiate the best purchase price. What might be your concerns? Over the years, various Investors have raised several key issues. Things like Being locked-in for a 10-year period, without any pre-agreed way of GETTING YOUR EQUITY OUT; Considerable UPFRONT FEES Having NO SAY in actually choosing the Property; The Property being too HEAVILY GEARED; and Just one of many other investors with very little SENSE OF BELONGING.

6 Everything About Private Syndicates Page 6 There had to be a Better Way Creating a Successful Private Syndicate is not exactly rocket science! All it involves is approaching the entire process from YOUR point of view, as an Investor instead of from the traditional Promoter s perspective. The Upfront Fees for a Private Syndicate We simply asked the question Why should you be required to pay all these upfront fees? Our underlying belief has always been that A Syndicate ought not incur any more costs, than if you (as an individual) were to buy the property yourself! Comparing Public and Private Syndicates So, let s pause for a moment and quickly summarise for you just how public and private syndicates actually differ. Some of the key differences between many of the widely-marketed public syndicates, and the Private Syndicate we re proposing, are set out below. SYNDICATE PUBLIC PRIVATE Members Often 200 to 300 No more than 20 Appointment of Trustee By the promoter By the members Choice of Property By the promoter By the members Upfront Costs Decision When to Sell Regular Updates Establishment & Acquisitions costs; Plus entrepreneurial & equity raising fees By the promoter Usually generated by a computer Establishment & Acquisitions costs ONLY By the members Regular contact; plus 6- monthly briefings

7 Everything About Private Syndicates Page 7 Now you have a clearer understanding of some of the differences, let s look at what we ve found to be the ingredients of a successful Syndicate. Selling your Equity in the Syndicate There is to be a formal review by the Members every 4 years, to determine whether or not to continue the Syndicate. Over the past decade, you ve see an increased demand by the smaller investors for direct investment in property via Syndication due to a growing appetite for affordable, commercial property. And, to help our clients capitalize on these opportunities, we ll be assisting with the establishment of a number of property syndicates, based on the following model. The Profile of a Successful Private Syndicate Elected Board: Representing all the Investors Interests HWL Ebsworth [Legal Aspects] ALM Williams Partners [Accounting Issues] SYNDICATE [Unit Trust] Chris Lang [Property Acquisition and other day-to-day Property Matters] Ascot Partners [Financial Assessment of each Acquisition] Various Syndicate Members [As Unit Holders]

8 Everything About Private Syndicates Page 8 1. The Syndicate Structure For tax reasons, Syndicates are mainly structured as Unit Trusts. Each Syndicate will be limited to 20 investors; and the combined equity contributed by them will be a maximum of $2 million. The structure of each Trust would be as follows. A separate company will be incorporated to act as Trustee of each Syndicate. The Board of directors of the Trustee will consist of two to three Unit holders, appointed by the investors to ensure that the interests of all investors are properly protected. The Trustee appoints Chris Lang to handle the acquisition, and look after to look after any day-to-day property matters plus, help to ensure that the property is properly managed and the various statutory requirements will be met. The Trustee also appoints Home Wilkinson & Lowry (to handle the legal matters) and Williams Partners (to handle all the accounting aspects). In order to comply with the current ASIC requirements, each Syndicate will basically issue Units along the following lines. Equity Contributions Sample Syndicate Structure Equity Per Member Total Investment 2 Platinum Members $250,000 $500,000 4 Gold Members $150,000 $600, Bronze Members $75,000 $900, Totals $2 million As you ll appreciate, some variation to this configuration may be required, to fit with each particular Syndicate s needs. 2. Level of Borrowing The borrowing for each Acquisition will NOT EXCEED 65% of the Contract Price.

9 Everything About Private Syndicates Page 9 3. Selling your Units in the Trust Even though there won t be public market in the Units, there is an opportunity in the Trust Deed for members to transfer their Units. What s more, the Deed would require the Syndicate to undertake a formal review every four years, to determine whether (and when) to sell the particular property. If most members want to hold the property, and some Syndicate members wish to sell out the Trustee has the power to borrow, to buy back the Units of those members wishing to exit at that point. 4. Acquiring the Property Your Syndicate Board follows strict Buying Criteria: Suitable for Office, Retails or Industrial use; Satisfying all necessary legal and town-planning requirements; Reasonably new, and offering good depreciation allowances; Low ongoing maintenance; Of timeless or adaptable layout; with The possibility for sub-division; and Not of a specialized nature or unique design. 5. Preferred Locations Within the Metropolitan area unless the Syndicate Members wish to target a specific Regional area. Otherwise, NOT more than 30 minutes from the CBD. 6. Certain Properties are Excluded Those properties of a speculative or specialised nature; and also, any fulldevelopment proposals are specifically ruled out. 7. Buying in a Specific Price Range In most cases, properties will fall within the $2 million to $5 million range. However other properties can be considered, if preferred by a particular Syndicate. 8. Required Lease Terms Each Syndicate would strive to ensure there is continuity of income Ideally, 5 years remaining on the lease; Rentals are at realistic levels; and In smaller properties, the majority of space is occupied by a single tenant.

10 Everything About Private Syndicates Page Due Diligence carried out To minimize your risk of incurring any serious early Maintenance or Replacement costs PLUS ensuring all the Legal aspects are in order. 10. Legal and Accounting Advice Contracts for purchases are always fully checked by lawyers and (if required) tax accountants, before a Syndicate pays any deposit. Home Wilkinson & Lowry, solicitors experienced in Syndication and Property Law, are retained as solicitors for the various Syndicates. And Williams Partners are engaged to advise on (and handle) all the various compliance and accounting issues. 11. Timing of Your Investment into each Syndicate 30% of your intended Equity is contributed at the outset which is then placed into the Solicitor s interest-bearing Trust Account, to cover the initial deposit on the Property. The remaining 70% would then be paid within 28 days of the Purchase Contract being executed. While your investment into the Syndicate needs to be by way of cash, it need not all come 'out of your pocket' - because the financiers for the Syndicate will provide you with personal funding (based upon equity you may have in other property), if you want to improve your overall tax position in relation to each Syndicate. Hopefully, this has now given you a much clearer understanding of how successful Private Syndicates really work. How do You progress things further from here? If you would like to explore the idea of joining a Syndicate simply click on the button below, and let me know you would like some help to progress things to the next stage. Taking the Next Step Disclaimer: As you'll appreciate, neither Gardner+Lang nor GrayJohnson are financial planners nor do we hold ourselves out to be. The information included above has been compiled from Gardner+Lang's experiences since Before acting upon any of these details, Gardner+Lang strongly recommend you seek advice from your own accountant or financial planner to verify the accuracy, reliability and completeness of the details provided, along with the appropriateness of this type of investment to your specific circumstances. Neither Gardner+Lang nor GrayJohnson will be responsible for any loss or damage incurred as a result of your reliance on the information provided.