The properties acquired must meet our strict criteria – prime location, well arranged flexible accommodation, strong Lease terms, and good Tenant covenant, whilst providing a high enough rental stream to fully service mortgage finance where introduced into the investment. Furthermore, we rarely acquire ‘dry’ investments but seek investments with an additional performance factor, such as an early rent review, adjoining development proposals, or an ‘off-the-market’ purchase.
Participating Investors can be private individuals, companies, overseas investors, off-shore funds, charities or pension schemes.
In the current challenging market conditions it is important to take a long term view, acquiring investment properties with the intention of a three to seven year hold, rather than the two to three year view taken with many earlier purchases.
Although prime property can produce stunning returns, it is the most illiquid of the investment disciplines. Investors should ideally participate with monies which are unlikely to require being returned at short notice. The maximum gain will usually be achieved when the Syndicate, with the advice of the operators, can choose the time for disposal without pressure as to whether it does or not.
Some of our syndicates are designed to achieve maximum capital gain by the leverage of the property within its assured income stream, but in response to the current low interest rate climate, and the lack of commercial mortgage monies, we increasingly acquire properties to provide income as cash purchases.
Cash syndicates are arranged without mortgage finance. Typically these are secured on good quality properties, yielding around 8-12% or so from the rental income, which is distributed quarterly. These have proved very attractive to our Private Clients, particularly those who are retired for whom income is important. Pension Fund Clients receive the rental income free of tax, unlike share dividend income, which is subject to a 20% tax deduction. We look to select well in the hope of also achieving a reasonable capital gain upon ultimate disposal.
Pension Schemes receive both income and capital gains tax free.. For private investors this also can be very effective; for example, a £50,000 share taken jointly by a husband and wife in a syndicate that returned a 60% profit would mean that if the Capital Gains Exemption Allowance (currently £10,200) was available to each of them, more than half the profit received would be free of tax. This allowance is also available to children, enabling a private investor to split a share further for greater tax efficiency. For overseas or off-shore investors the Capital Gain is also presently free of tax.
The nominee company is the legal owner of the property and holds it on trust for sale for the syndicate members as beneficial tenants in common. The syndicate members have day-to-day control over all the arrangements affecting a property – the professional advisers have no independent discretion. Therefore the syndication is neither an “investment” nor a “collective investment scheme” within the meaning of the Financial Services Acts. As such neither the Financial Services Compensation Scheme nor the Ombudsman Scheme created pursuant to that Act would be available to syndicate members in respect of any claims or otherwise in relation to these arrangements.
The Trust Deed, which regulates how each property is held, requires the nominee company to ensure that the Managing Agents obtain the consent or instruction of all the syndicate members before taking any action in relation to the property. Furthermore, the syndicate members can require the nominee company to transfer the property into the names of some or all of the syndicate members, the director and secretary of the nominee company taking no part in the day-to-day running of the property, or in the decisions that have to be made by the syndicate members.
These arrangements must take effect both in form and in substance and although decisions are not required with any great frequency, a syndicate member must be prepared to take part in them when necessary, in co-operation with other members, and with unanimity of purpose.
If the syndicate members do not exercise day-to-day control, it is possible that the scheme as a whole could be taxed under the unauthorized unit trust regime, which might lead to a double taxation of capital gains Accordingly, syndicate members are subject to tax, where not otherwise exempt, only on their share of the net income and of the capital gain.
These regulations require us to confirm the identity of new Clients and satisfy ourselves as to their probity. Should you wish to participate in our property investment syndicates, when returning the Registration Form attached hereto, please enclose copies of your current Passport and a Utility Bill/Driving Licence showing proof of address, together with the name and address of a fiscal referee, such as your Accountant, Solicitor, or Pension Administrator. If you wish to co-invest with your spouse a copy of their Passport will also be required.
Should an Investor wish to realise his investment prior to the maturity of the investment strategy for the property, Edmonds Commercial, as the Syndicate operator, will offer the share at the required price to the other syndicate members in the first instance, and thereafter if necessary to investors outside that particular syndicate.
As our income syndications run for several years, from time to time investors do wish to sell and an active trading market has developed within these ventures. When shares become available in the income syndicates they are invariably taken up rapidly, usually by existing investors within that syndicate, who welcome the opportunity to increase their holding in a syndication which is nearer to maturity and resale than at the time of their original investment. In normal market conditions, the transfer can usually be completed within two weeks – thus giving liquidity comparable to the equity market and far greater than in the direct property investment market.
With its inherent low risk status prime commercial property investment returns should be between two and three times Money Market Rates, dependent upon whether interest rates are low or high in the cycle. With a current nominal Base Rate, Three Month LIBOR around 0.65%, and Commercial Mortgage Rates circa 3%, appropriate returns would presently be circa 6/7% per annum compound, although Edmonds Commercial strive to do better than the industry average.
We only operate cash syndications which, with no borrowings, have a lower risk profile and provide a reliable income stream. For Investors now in drawdown from their Pension Funds these syndicates provide an ideal structure.
Our investment strategies are designed to minimise risk, with the purchase of prime and near prime properties, the consequence of which has been that, as yet, we have avoided a loss-making syndicate.
The advising Professionals – the Surveyors, Solicitors and Accountants – charge only their normal professional fees, and these are processed individually and transparently. There are no extra fees charged for the establishment of the individual syndications or their administration, these costs being entirely absorbed within the standard fee structure. This provides excellent value for our Investors as there are none of the front end deductions, annual asset value fees, early exit penalties, or profit-sharing fees on disposal, charged by most of the more recently established syndicate managers.
Edmonds Commercial charge a 2.5% fee upon the purchase price of the property, a 5% management fee on the gross rents collected (within which loan administration and VAT returns are dealt with, if applicable), and a 2% fee upon the sale price achieved.
Interim share valuations are provided when required at a fee of £250 plus VAT per individual holding.
The value of these investments can fall as well as rise and some or all of an investor’s money may be lost. Potential Investors should consult with their own independent financial advisor to assess whether this type of investment is suitable for them and must be aware that they may have no right to seek compensation from the Financial Services Compensation Scheme.