Commercial property: taking a closer look

Malachy Mitchell of Farrelly & Mitchell advises investors to take a close look at exactly what type of property the syndicate is investing in.

"People will use the generic term 'commercial property'," Mitchell says, "but that could be industrial, it could be office, it could be retail, it could be leisure or it could be a mixture, so it's very important that they look at that."

Investors considering a DIY approach should consider this advice from Peter Carty, partner with BDO Simpson Xavier.

"Where a syndicate provider is involved, additional costs exist. However, in return for such additional cost, investors receive the benefit of an expert negotiator on acquisition matters, the efficient packaging of the transaction and economies of scale from the syndicate provider's previous deals."

Carty adds that syndicate providers may also have the ability to purchase properties off-market from developers, insurances companies, banks etc to which the general public may not have access.

Ensure that the syndicate promoter is well-established and has a good track record, he says.

Check if they are regulated by the Irish Financial Services Regulatory Authority or a professional body.

"Make sure the target market is suited to your risk profile and overall investment portfolio. Are you comfortable with the country, the economy, the exact location and the tenants? Are you satisfied that the rental yield and capital appreciation projections are realistic? Are you prepared to lose some or all of your investment capital?"

Carty also advises a check that any borrowings are on a non-recourse basis - ie the investment property is the only asset the bank can call upon.

Watch out for management fees hidden in the fine print. Purchase and syndication costs average about 5 per cent of the property cost.

Ongoing management costs are in the range of 4-7 per cent of rents. Promoters may also take a percentage of any "supernormal" profits above the target return.

"Make sure that you are fully aware of the risks involved," Carty adds. "For example, if the syndicate buys a property outside the euro zone, there may be a currency risk. Gearing also increases the risk level of the investment."

He reminds that your investment will be tied up for five to 10 years.

"Although promoters will generally facilitate investors if they need to exit before the end of the term, tax and legal complications may arise. Investors need to be comfortable that they can afford to lock up the investment amount for the anticipated term."