Traps of a property syndicate

Syndication has its opponents, including investment analyst Norman Stacey of Diversified Investment Strategies, who wrote in a newsletter: "It continues to mystify that Kiwi punters persist in being suckered by property syndicates. As victims are now discovering, expensive, illiquid and poorly diversified rental streams can be suddenly consumed by management, refits or debt servicing, and without recourse.

"By contrast, listed investment securities offer superior yields to the investor, diversity of holdings, transparency and regulatory disclosure, and with near-instant liquidity. No contest.

"We continue to find value in New Zealand listed property securities, for attractive yields, and now improved prospects of growth."

Stacey questions the returns from property syndication, saying investors get less back because costs such as tax, management fees, and other items, have to come out of the quoted return. He also says he has nothing against property generally as an investment class: "But the structure of the investment vehicle is critical to success.

"Ill-informed investment advisers like unlisted property in the mistaken notion that it reduces portfolio volatility by not being subject to sharemarket risk. "The same bandits tend to report it at face value, irrespective of opening substantially below book value, or even when traded at a discount in a secondary market.

"Syndicates beggar logic in offering lesser return for greater risk. Like most business people, I would always be extremely wary of being a minority shareholder in any closely-held company because your rights are limited and recourse is almost non-existent. Property syndicates demonstrate this perfectly," Stacey said, citing the disastrous Ballantyne, Park Tce, Metropolis and now Parliament St, Auckland, offers - where an accident on the site resulted in the death of a worker and the job being shut down.