St Laurence reinvents syndication

By Campbell McIlroy

Friday 26th October 2001

St Laurence Group has reinvented the wheel with its new proportionate ownership scheme which it says offers direct property ownership without any management hassle.

Although not a new investment vehicle this is the first time St Laurence has tried its hand at proportionate ownership.

The company is using the scheme to market The Warehouse store in the Harvey Norman bulk retail centre at Mt Wellington to investors looking for a larger investment than traditional syndicates offer.

Under the scheme investors buy an undivided share in the registered freehold title of the building, which is held through a nominee company, Direct Property Investments No1.

St Laurence is offering 92 equal shares in the nominee company at $25,000 each.

The $2.3 million raised combined with a $2.7 million secured bank loan from the ASB fixed at 7.5% will be used to buy the property for $4.95 million.

The remaining $50,000 will be put to fund establishment costs such as legal fees, marketing costs and bank loan establishment costs.

The property was bought by NZPS Investments, which is owned by St Laurence's Kevin Podmore and Mike O'Sullivan, for $4,713,774 in July. NZPS will pay St Laurence Group a fee of $200,000 for arranging the sale, out of which St Laurence will pay brokerage of 4% plus GST to its appointed brokers.

Management fees will be charged out at 4% of the gross rental, plus an annual administration fee of $6000. St Laurence also receives a fee of $2000 for its role in arranging the offer.

Mr Podmore said the charges worked out at about .5% of total tangible assets and the promoter's fee for St Laurence was about 2%.

Proportionate ownership schemes had their genesis with real estate agents who grouped investors together to buy properties none could afford on their own. These schemes led to the development of the syndication market which grouped together large groups of smaller investors.

Mr Podmore said the company was targeting the investment at a different market, more at people interested in direct investment in smaller commercial properties.

He said the structure avoided the upfront costs of having to prepare a prospectus and investment statements, as well as the trustees' fees associated with a syndication.

"Because the costs aren't so high we can buy smaller properties and the investors also have the ability to take advantage of the depreciation benefits because they are considered to be direct property investors."

But St Laurence is not expecting the demand for this type of offering to be huge - perhaps three to four offerings a year.

Some commentators have questioned whether Sylvia Park would have any impact but Mr Podmore said while he expected a bit of a negative impact should Sylvia Park proceed it was a bit of an unknown quantity.

If The Warehouse chose not renew its lease, which expires in October 2009, Mr Podmore said the site could be subdivided into smaller units.

The company is forecasting 10.1% pre-tax cash return for investors, which will be paid out on a quarterly basis.

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