What we do
We help our investors move towards financial freedom – enabling you, your children and family to live the life you choose.
What is commercial property syndication?
Commercial property syndication is a mechanism for a number of investors to pool their money so they can collectively own a commercial property which may otherwise not be available to them.
While there are a few different structures available, ownership is usually proportionate to the amount each investor contributes. Investment returns can come from two sources – distributions made out of rental income (usually paid monthly) and any capital gain on the property when it is sold.
Property syndication offers a viable way for individuals to reap the rewards of the higher yields associated with commercial properties. It enables everyday Kiwis to tap into a potentially lucrative and relatively low risk source of asset growth, to enhance their future wealth.
Of course, there’s plenty of nuance and ‘legal speak’ around the exact workings of commercial property syndication. Below we’ve highlighted a few key things we think are helpful for you to know. If you want to learn more, please don’t hesitate to contact the team.
Investors – Individuals or other entities (e.g. partnerships, trusts and companies) each owning a proportionate interest in the property and receive returns from their investment.
Distributions – Paid to investors from operating cashflows generated by the scheme. Distributions from our syndicates are usually paid monthly at a level that is approximately equal to net rental income after costs and before tax.
Due diligence – Each property and scheme is highly analysed to ensure it meets our strict investment criteria. We perform detailed, legal due diligence taking into account land, building, chattels, leases and operating expenses, tenant/s, insurances and resource management issues. We also conduct financial due diligence to ensure that the property provides acceptable returns.
Tenant covenant – A key factor in selecting a property suitable for syndication is having a strong tenant covenant. Assessing the financial stability and strength of the tenant is essential to ensure there is a high degree of confidence that rent and opex charges will be paid consistently.
Licenced Scheme Manager – Quarry Capital Limited is licensed under the Financial Markets Conduct Act 2013 (FMC Act) as a manager of Managed Investment Schemes (excluding managed funds) which primarily invest in, or own, real property in New Zealand (other than forestry or real property associated with forestry schemes or developments) and assets associated with ownership of that real property, such as chattels and fixtures. Quarry received its licence in September 2017 allowing for the issue of regulated schemes under the provisions of the FMC Act.
Generally, commercial property syndications are relatively high yielding compared with other investments such as residential property or bank term deposits.
Pre-tax cash distributions are typically paid monthly to investors, making syndicates useful for people seeking a regular income stream.
One of the main benefits for investors is being able to access investment in property not usually possible via their own means. Access to large scale commercial property requires significant capital, which is made possible by investors pooling money together via syndication.
Investors can enjoy passive income without being involved in administrative aspects of the investment such as tenant and property management.
However, at Quarry we encourage investors to take part in decision making especially at AGMs. In the larger syndicates, an Advisory Group has been formed to assist with planning and management. These groups meet regularly and individuals are paid a fee.
No investment is ever 100% risk free. As part of our commitment to transparency, we’ve highlighted some of the key risks of commercial property syndication below.
Commercial property syndicates generally have a long-term investment horizon, so aren’t appropriate for those wishing to have their funds available in the near term. It may take some time to find a buyer for investor interests. This is a process the team at Quarry Capital are happy to facilitate.
A failure to meet rental obligations by a major tenant may limit a syndicate's ability to meets its expenses, loan repayments and distributions, and may also result in a decreased property value if the tenant cannot be replaced.
At Quarry Capital, we are in constant communication with our tenants and closely monitor and report on any concerns regarding tenants meeting their obligations. We also work closely with tenants to address any issues.
In some cases, syndicated properties may be leased to a single tenant. While theoretically less costly to administer, this lack of diversification presents a risk in the event of the single tenant defaulting on their lease.
Detailed due diligence is carried on single tenant properties, and in many cases, we are provided with personal guarantees or fixed term bank guarantees as security. We also rely on bank assessments of tenancy covenants.
Property syndicates may use bank loans secured over the property to finance part of the purchase price. If the property value decreases, pressure may be put on bank loan-to-value requirements which in turn may limit the syndicate’s ability to pay distributions to investors. This is especially so if the loans are interest only as the bank may then seek principal payments to be made to reduce debt.
Quarry Capital has a close relationship with all banks involved with our syndicates. We provide quarterly reports to our bankers based on strict key performance areas as well as conducting annual valuations. Any issues concerning the bank’s position are communicated with Quarry Capital and reported to investors.