Property syndicators test market

Friday 31st August 2001

By Chris Hutching

Property syndications may have gone out of favour among some investors but two syndicators - Dominion Funds and St Laurence - are testing the market for new offerings.

Dominion Funds' new offerings are part of a strategy to beef up syndicates that own aging properties with pending lease expiries and falling capital values.

The new chief executive, Paul Duffy, will undertake a four-week tour of the main cities and towns to review the portfolio and unveil two new offerings. Dominion Funds directors include Alastair Hasell, Richard Lynch and Doug Somers-Edgar, founder of financial advisory network Money Managers, which markets the syndications to clients.

The Dominion Funds strategy to overcome falling property values is to buy more of them. It has signed a purchase agreement for the ASB Business Centre in Albany, with settlement of the $19.6 million deal expected to be in October when construction is completed. The 8000sq m building is purpose-built as an information technology centre for ASB Bank.

Another recent offering that raised $8 million was Dominion Newmarket Properties, set up to buy the 21-25 Teed St office building in Newmarket, Auckland. Returns are forecast at 9.5% in the first two years. Dominion has assets under management of more than $330 million in 29 funds owned by 7689 investors.

Mr Duffy said commercial office markets had reached the bottom of the trough. Dominion cited recent CB Richard Ellis predictions of annual rental growth of 4.5% for Wellington and 5.7% for Auckland over the next five years.

But investors might recall similar bullish forecasts just before the Asian crisis of 1997 when a handful of property trusts were listed and suffered an immediate crash in capital values from which they are only now recovering.

Meanwhile, Wellington-based St Laurence Group is testing the idea of direct proportionate ownership among financial intermediaries and real estate agents. This involves selling property titles rather than shares of units and gets around Securities Act requirements to register a prospectus or appoint trustees.

The advantage, according to St Laurence, is that costs are reduced and investors may obtain tax benefits of depreciation. A promotional document such as an investment statement will still be required with valuations, related party transactions, commissions, annual statements, and details about promoters.

St Laurence hopes to offer The Warehouse store it recently bought at Mt Wellington in Auckland for nearly $5 million.

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