Syndicate Structures

Legal Structure

Properties acquired are held in newly established property nominee companies, formed for us by Druces, who serve as Nominee Directors. These companies enter into a Deed of Trust to hold the property on trust for the syndicate of participating Investors, each of whom owns a defined share of the property. After the sale of the property the Companies are struck off to ensure that no residual liabilities arise thereafter.

Financing

Where appropriate, to enhance the capital growth performance of the purchased property and increase the tax efficiency of the investment structure, a mortgage is arranged with one of the leading Lenders.

All mortgages entered into are on a non-recourse basis. The Lender is comfortable with this provided that the Tenant covenant is strong and the rental stream reliable. At the very worst the Investor’s loss could be no greater than his initial investment and an entire loss unlikely where the asset comprises a prime property let to a first class Tenant. A further safeguard for our Investors is usually built into the structure by the fixing of the mortgage interest rate for the envisaged period of ownership of the property – a two, three or five year term, dependent upon the strategy.

Costs

Established at the outset in 1990 our costs remain unchanged. 

The advising Professionals – the Surveyors, Solicitors and Accountants – charge only their normal professional fees. 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.

Ratcliffes charge a 1.25% fee upon the purchase price of the property, a 0.5% fee upon the mortgage finance arranged, a 5% management fee on the gross rents collected (within which loan administration and VAT returns are dealt with, if applicable), and a 1.5% fee upon the sale price achieved.

Interim share valuations are provided when required at a fee of £250 plus VAT per individual holding.

Investment Criteria

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.

Typically we arrange syndicates on properties at a cost ranging between £1million and £25 million, with shares from £50,000 to £350,000.  Half shares are sometimes available.

Participating Investors can be private individuals, companies, overseas investors, off-shore funds, charities or pension schemes.

Investment Strategy

Extraordinary annual compound returns, in excess of 92% were achieved in our early syndicated investments, where properties acquired in the early 1990’s, when the property market cycle was at an historically low point, were sold out in the recovered market of Spring 1994.

However, these exceptional returns were achieved against an economic background of high interest rates and higher levels of inflation.  The U.K.’s subsequent benign economic circumstances until mid-2007 provided a stable period of low inflation and reasonable interest rates, allowing well selected property investments to comfortably out-perform most other low risk areas of investment.

In the current challenging market conditions we are taking a longer view, acquiring investment properties with the intention of a three to five year hold, rather than the two to three year view taken with many of our 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 Managers, can choose the time for disposal without pressure as to whether it does or not.

Income

Many 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, we also increasingly acquire properties to provide income.

Cash syndicates are arranged without mortgage finance. Typically these are secured on good quality properties, yielding around 5% 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.

Taxation

Pension Schemes receive both income and capital gains tax free. Generally we arrange mortgages to wash out income and maximise the capital gain. 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 £10,100) 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.

Financial Services and Markets Acts

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.

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. However, in the case of all completed syndications, 114 plus to date, the Inland Revenue have not asked that the nominee company or the arrangements should be separately taxed. Accordingly, syndicate members have been taxed, where not otherwise exempt, only on their share of the net income and of the capital gain.

Money Laundering Regulations

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.

Liquidity

Should an Investor wish to realise his investment prior to the maturity of the investment strategy for the property, Ratcliffes, as the Syndicate Managers, 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. 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.

Syndicate Investment Returns

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 2.5%, and Commercial Mortgage Rates circa 6%, appropriate returns would presently be circa 8/10% per annum compound, although Ratcliffes strive to do better than the industry average.

Since 1990 some 225 properties have been purchased within Ratcliffes’ syndicated investment structures.  Our audited returns from our first syndicate resale in September 1991 to December 2009, confirm that 142 properties in 114 syndicates have been sold, with all Syndicates returning profits to date.  Over an average ownership period of 3.5 years our Investors have received an averaged return on their invested capital of just under 89% and an averaged annual compound return of nearly 26.5%.

92 properties held in 68 syndicates were acquired in geared syndicates, where mortgage finance enhanced the performance.  With an average ownership period of 3.69 years, returns averaged just over 104% on capital employed, and an averaged annual compound return just under 30.5%

Many of our Investors prefer our 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.  We have sold 50 such properties held in 46 syndicates after an average ownership period of 3.21 years, achieving an average return on cash invested of just under 66.5% and an averaged annual compound return of just over 20%. 

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. 

We currently manage some 85 syndicated investment properties in 67 syndicates with a total value circa £175 million on behalf of some 250 investors, some 40% of whom invest through their Personal Pension Schemes.

Further suitable properties are actively being pursued to create additional investment opportunities.  To receive particulars of our property investment syndications, please complete and return the attached Registration Form, providing a referee, together with copies of your Passport and a Utility Bill/Driving Licence, showing proof of address, in the enclosed reply-paid envelope.