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Jumping The Ditch For Higher Returns

Investing in Australian property gives Kiwis a way to diversify their property investments, says Silverfin.

8 October 2021

Autumn 21

(In partnership with Silverfin Syndications)

Silverfin’s new Adelaide syndication scheme is likely to be just as popular as its earlier Australian investment opportunity, says Silverfin’s CEO Miles Brown.

A $10 million Brisbane property that was syndicated in November 2017 has been consistently delivering returns of 8.65 per cent per annum (pre-tax), as forecast in the memorandum of information, says Brown.

Now the company is taking advantage of a market that’s again offering better value for money with the syndication of a property at 13 Webb Street, Adelaide.

“The New Zealand market is very competitive right now,” says Brown, “driven by low interest rates, so quality stock is rather scarce and priced accordingly, particularly in the Golden Triangle of Auckland, Hamilton and Tauranga.

“In Adelaide, where the property market operates in a similar way to New Zealand’s, we find we can buy better for cheaper.”

The scheme is projected to provide a pre-tax cash return of 8.0 per cent per annum, paid as a monthly distribution to investors.

The property is made up of an industrial warehouse building and an office building on a large, 4.4-hectare site that offers opportunities for future expansion.

It’s fully leased to Infrabuild Trading Pty Limited, Australia’s largest integrated manufacturer and supplier of steel long products and solutions, with over nine years left on their lease.

How syndication works

Syndication is a tried-and-true model for property investment that’s been used for over 30 years, says Brown.

Silverfin gets a property it likes under contract, raises equity, and splits the ownership of the property up into parcels, in this case, 206 investment parcels of AU$50,000 each.

Everybody who buys a unit in that property owns their percentage of it.

Says Brown: “Investors get to become a landlord at an accessible price point, with no property management hassles.”

Many people who choose syndication want to invest in commercial property but find the cost of buying a building too overwhelming.

With Silverfin’s proportional investments, Kiwis can become commercial property landlords without the hefty price-tag, or the work involved with managing tenants, says Brown.

“We enable people to invest as though they were an institutional investor or a high-net-worth individual, by purchasing portions in quality commercial real estate.”

The company was set up by the late Cheryl Macaulay in 2016 and it’s staying true to her legacy of buying quality, high-yielding commercial, industrial, and retail property.

Silverfin’s goal is to syndicate about NZ$100 million worth of quality commercial property every year and its portfolio is currently sitting at NZ$466 million under management, spread over 19 separate syndication schemes.

“We look at all sectors – industrial, office and retail.”

The company targets a wide range of properties and sizes, the smallest being the AU$10 million property in Brisbane, and the largest being the Ingham’s portfolio in Waikato, which was acquired in 2019 for NZ$86 million.

Secondary market

One common concern investors have with syndication is how they can get their money out of a scheme prior to it being wound up through the sale of the property, says Brown.

Syndicates are less liquid than shares, for example, but Silverfin has partnered with Syndex, which has developed a secondary trading platform for investors to buy and sell units in syndicates.

“Property syndication works best as a medium to long-term investing strategy,” says Brown, “but if they need to, investors can sell their units on the Syndex platform.”

Silverfin doesn’t have a large volume of secondary sales at the current time. However, in the last year 27 units were traded via the secondary market on Syndex, with a total value of NZ$1.38 million, selling in an average time of seven days. This demonstrates that liquidity in this secondary market is available and growing.

There are risks in syndication, as there are for most investments, but Silverfin works hard to minimise them, says Brown.

One risk is rising interest rates. Silverfin typically borrows up to half the cost of each transaction. This could reduce an investor’s returns over time if rental growth does not keep pace with interest rates.

Another is tenant risk. “But to minimise that risk, we seek long-term leases with robust tenants.”

Other issues that can be managed are repairs, insurance and leverage – being the need to extend loans from time to time. “What we’re all about is finding quality property investments for our investors which will offer between a 6.0 per cent and 8.0 per cent pre-tax distribution return per annum.”

Silverfin is run by a passionate, tight-knit team that puts investors’ interests first, says Brown. “The door is always open for coffees and a chat.”

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