Unlisted property trusts

At Fawkner Property, we create unit trusts which purchase commercial properties, and we then offer the units to investors.

The goal of these trusts is to provide investors with reliable monthly income derived from commercial properties tenants as well as capital growth in the value of the properties.

There are some important contrasts:

• The private property trust is professionally managed, so you do not need to be involved in hiring managing agents, leasing decisions, capital expenditure decisions, and owners’ corporation meetings.
• Capital expenditure is allowed for by the manager, so you will not need to come forward with more money to upgrade the property.
• If there is a loss, your downside is limited to your investment, whereas in a geared residential investment, the lender has full recourse to your other assets.
• Commercial properties are not subject to residential tenancies legislation, which limits the field of action of the landlord.
• While residential property leases are for a maximum of one year, with a market rent review each year, commercial property leases are longer – sometimes longer than 10 years – and have fixed or CPI increases each year, giving greater certainty of income.
• Dealings with commercial tenants are based on business principles, whereas dealings in relation to the principal place of residence of a tenant can have an emotional overlay.

All trusts have a fixed term – usually six or seven years – which is set out in the disclosure document. At the end of the term an Exit Offer is made to investors, giving them the chance to exit at a nominated exit price, determined by the trustee in accordance with the deed (Fair Value). If 75% or more elect to exit, the trust is wound up. If less than 75% wish to exit, buyers are found for their units at the Fair Value. Priority is given to existing unitholders. If units remain unsold after six months, the trust is wound up.

Private Property Trust 11 and subsequent trusts have provision for an annual minor liquidity event, if the trust continues after the first Exit Offer. This allows for surrender of a specified number of units at Fair Value, up to 5% of the trust. These offers are discretionary and depend on the trustee being satisfied that the offer is in the interests on unitholders.