A syndicate is a group of investors who come together with the common aim of purchasing a specific property in pre agreed shares and who operate together in running and managing the property, although day to day tasks may be delegated to third party’s.
Because investment in commercial property is a long term (and somewhat illiquid) investment, it is not suitable for everyone. Please see our ‘What are the risks?’ page for more information
Whilst we try to keep things as simple as possible, there are some basics which any syndicate needs to agree on.
The property – the syndicate prospectus should specify the property it plans to invest in/purchase. There should be a generic description and some detail e.g. location, price, condition, projected rental yield and so on).
Investment strategy – the syndicate should indicate its plans for the property e.g. buy land and develop/build and sell, long term hold, change of use etc.
Capital required – the total funds required, the minimum contribution from each investor, the expected number of investors (usually not more than 15 to 20).
Leverage – specify whether or not you plan to obtain bank debt, and if so, on what terms.
Investment period – in other words, the length of time during which the property is to be held.
Approval of disposal – the voting requirements to approve a sale or other disposal of the property.
Service providers and conflicts – specify what service providers and advisers are to be appointed (e.g. surveyors, lettings agents, lawyers, accountants and tax advisers), and disclose any connection with you or any of the other proposed co-investors.
Profit sharing ratios – usually this would simply be pro rata to the amount originally invested.
Exit / liquidity – the arrangements may cater for an investor who wants to exit the arrangements before the expiry of the term – for example on a change of family circumstances or on death. This should also include pre-emption procedures so that an investor looking to exit, must offer his / her interest to the other investors pro rata, before offering the interest to an outside buyer.
Dealing with defaulters – a default on the part of one of the investors can compromise the whole of the arrangements – for example, if an investor fails to actually participate in decision-making. In that situation, the other investors may have the right to buy out the defaulting investor, sometimes at a discount to the current market value of the venture.
LPS Ltd provides a defined syndicate structure and process which operates with the above framework