The investment vehicle of a ‘Commercial Property Syndicate’ is rapidly becoming quite popular amongst the Newcastle and broader investment communities as a way to get into commercial property at a lower price point buy-in. As commercial lawyers in Newcastle, we are frequently approached by our clients for advice before they buy a commercial property, but not as frequently when they are considering buying into a Commercial Property Syndicate.
In a lot of ways, a Commercial Property Syndicate can be a riskier proposition, as you are hitching your wagon to not only other investors, but also the Syndicate and all of their related parties. As such, there are more legal relationships to consider and therefore legal (and non-legal) due diligence is a vital part of the process before taking the plunge. This article will provide a snapshot of some of the things to consider.
Before we get into the nitty gritty, we should quickly clarify exactly what we mean by a ‘Commercial Property Syndicate’. They can go by a range of names including Real Estate Investment Trusts, Unlisted Property Trusts, Property Funds and Property Investment Groups (just to name a few). Essentially, each of these schemes or entities are ways for investors to pool their money to buy or build commercial real estate, often structured as a unit trust. This means that investors own an interest in a larger entity and it is that entity that owns the commercial property.
Legal due diligence in relation to Commercial Property Syndicates (“CPS”) can be broken down into three broad categories:
- The legal documents – CPSs are formed and operate via a range of legal documents and arrangements. These should all be sought and reviewed by your lawyer. The nature of the documents and arrangements are dependent on the type of CPS, but regardless it is those things that your lawyer should review and advise on before buying in. A good example is the CPS trust documents.
- Regulatory compliance – This is the most boring consideration, but arguably the most important. Determining what level of legal and regulatory compliance a CPS must meet and ensuring that the particular CPS meets that and obtain evidence of it. A good example is determining whether the CPS has an AFS Licence and the details thereof. If they do not, it is important to know why.
- Enquiring as to the negatives – My experience with CPSs is that they all are very quick to tell you about the good (e.g. ROI etc.), but not all will freely disclose the negative. Exploring all of those potential negatives is beyond the bounds of this article, but a good lawyer can help you find them during the due diligence process. A good example is understanding any past, current or pending litigation or disputes that the CPS has been involved in.
Lawyers are not permitted to give financial advice, and this article does not in anyway look to provide financial advice on the topic of Commercial Property Syndicates, but rather points out that there is a place for a lawyer in this process and prospective investors should strongly consider engaging a lawyer to assist before taking the plunge.
If you are looking at investing in a Commercial Property Syndicate, please feel free to contact Baker Love Lawyers Commercial Team today.
