Establishing a Syndicate
1. Sourcing Properties
The Fawkner Property Investment Committee establishes an investment strategy and Fawkner Property directors use their established networks to source potential properties that are compatible with the Fawkner Property investment strategy.
2. Preliminary due diligence
Three-quarters of a property investment outcome is determined in the purchase phase. Financial modelling is completed on properties that meet the investment criteria. A full profit and loss statement, balance sheet and cash flow statement is generated for each year of the full term of the potential syndicate. Sensitivity analysis is used to quantify interest rate risk, tenancy risk and market risk. The bank is approached to ensure that there is nothing of concern about the property as security for a loan.
3. Expression of Interest
A written expression of interest is lodged with the vendor, including specifying any special conditions needed to address issues arising from the preliminary due diligence. The expression of interest is subject to satisfactory detailed due diligence.
4. Detailed Due Diligence
The Fawkner Property Due Diligence Checklist can be viewed here. The due diligence process:
- aims to discover latent defects in the property and evaluate compliance with statutory codes.
- quantifies capital expenditure and maintenance requirements;
- assesses the quality of management of the property, including compliance with leases and statutory requirements;
- provides information for management of the property and disclosure to investors;
- establishes the title to the property and the legal basis of tenancies, including survey and retail lease compliance;
- establishes a sound basis for claiming tax deductions for capital allowances.
5. Conditional Contract
If the expression of interest meets with vendor approval and due diligence is satisfactory, a contract is entered into by the newly established unit trust, subject to any conditions arising from due diligence.
6. Information Memorandum
An Information Memorandum is compiled to communicate the benefits and risks of investment in the property Syndicate to investors. The Information Memorandum contains all the information that a wholesale investor would reasonably require to make a decision about investing in the Syndicate. Funds raised from investors are held in a special interest-bearing trust account until all contract conditions are fulfilled.
After special conditions are met, the Syndicate purchases the property, using investors’ funds and bank finance. Units are issued to investors and the Syndicate commences.
Sometimes it is in the best interests of investors to keep matters confidential, such as sensitive tenant negotiations, but, in general, investors are kept fully informed through quarterly information circulars. Annual financial statements are reviewed by an independent accountant and made available to investors upon request.