A syndicate, also known an ‘investment club’, is often used when a property developer has ongoing relationships with investors, who they have been working with for some time. It lets several private investors participate in a property development on equal terms. The developer gets access to capital without having to borrow from a bank or other commercial lender. And the investors get to spread their risk and participate in bigger schemes than they would otherwise be able to.
Typically, each investor holds shares in an SPV (a ‘Special Purpose Vehicle’, which is a company that owns the property assets).
There are several things that the founder of a property syndicate needs to be aware of. One is that marketing of property syndicates is highly regulated, so it’s important to have a detailed understanding of the rules as breaking them can incur serious penalties. The ongoing administration of the arrangements is another potential difficulty: they must also be managed carefully so that the syndicate does not constitute a ‘Collective Investment Scheme’ for regulatory purposes. Failure to administer the scheme correctly can be a criminal offence.
To avoid falling foul of the regulators, it’s essential that all decisions are made by the participants themselves. Every investor must be actively involved. In other words, syndicates are self-managed, and there can be no ‘passive investors’.
Communication is absolutely vital, from the start and throughout the project. Is every member of the syndicate clear about the risks they are taking on? Are they happy to work with the other members, and do they accept that being in a group means giving up some autonomy? Is there a sound strategy in place, and does everyone understand and accept it?
Above all, property investment syndicates should be simple, transparent and intuitive – and these elements should be reflected both in the documentation and in the way that syndicates are operated. Setting up a syndicate up incorrectly is, at best, a waste of time, and may also mean that you miss out on an investment opportunity which you have spent a long time sourcing. At worst, it can expose you to criminal and regulatory prosecution, and result in the syndicate structure having to be unwound or corrected.
For all these reasons, it’s essential to have the right legal agreement in place. This needs to set out all roles and responsibilities, and also say what will happen if, for example, a dispute arises, an investor wants to leave, or a new one wants to join.
We can help with every phase of the project: initial assessment and structure design; project planning and implementation; ongoing support and assistance. Where possible, we work on a fixed-fee basis.