If you’ve been wondering: what is co-investment? —you’ve come to the right place.

Co-investment is a type of investment that has compelling benefits for individual investors. Most investors are accustomed to the idea of buying shares. When you own a share in a company, that means you own a proportion of that company, and are entitled to a slice of its profits and assets.

Co-investing  is similar: it’s when a group of investors pool their money to buy a substantial property investment, and each investor then has a financial interest in part of the property. The ownership entities are called either Syndicates or Real Estate Investment Trusts (REITs)

Syndicates & REITs normally run for a defined term, after which it is wound up and the property sold or re-packaged into another co-investment. Typically, an investment is wound up after 5-7 years.

Individuals who invest in a company are called “shareholders”; whereas, individuals who co-invest are usually called “unit holders” in the case of a REIT’s or “shareholders” in the case of a syndicate. Irrespective, investors are issued unit certificates once their offer to invest is accepted and investment is received.

Just like shareholders receive dividends from profits and a capital return if they sell their shares, in co-investment, unit or shareholders receive distributions from rental income and a capital return upon the winding up of the syndicate.

Not many individual investors can buy an $8 million hotel or a $20 million shopping centre all by themselves. Co-investment, though, offers the opportunity for individuals to do just that! Often the properties chosen for commercial property investment syndication are of a very high quality: multi-tenanted with excellent tenants, long leases, and offering the prospect of above-average returns or capital growth opportunities. When a group of investors pool their capital into either a REIT or syndicate, they CAN afford a share in these better-quality properties with very competitive returns. Better quality properties are simply better investments. They maximise income reliability and capital security.

Some  commercial property REIT’s might have over 100 investors; small property syndicates generally have up to 10 investors. We only deal in co-investments that will have no more than 50 investors.

Unit & shareholder who invest usually receive distribution income every three months, although some syndicates distribute monthly. Monthly distributions are particularly attractive to investors who re-invest these distributions into other investments to take advantage of compounding their returns.

Income returns also have the advantage of being net amounts: any expenses that are incurred in running the syndicate have already been deducted.

Every kind of investing carries risk, and extraordinary adverse events which affect the workings of an investment do sometimes occur. When you co-invest, however, risk is shared across numerous investors. This is a huge advantage compared to outright ownership of a commercial property, where one investor bears all the financial risk.

As an extreme example, Covid-19 appeared in early 2020 and many businesses such as clubs and pubs were forced to cease trading altogether and therefore couldn’t sustain rentals. The flow-on effect was that investors who held a co- investment in clubs and pubs had to forego income distributions for a time. When these investments were held in property syndication, the financial damage was shared across numerous investors rather than just the one owner, who would have had to bear the total brunt of the loss of rental and perhaps, sadly, even the default of the tenant.

It’s not unusual for freehold property owners to be overwhelmed by the relentless management requirements that comes with owning property. Lease management and negotiations, property maintenance, government requirements, regulatory matters and maximising additional profit opportunities can be a full-time job. Co-investments are managed by professional teams on the investor’s behalf, which look after all these. This means that co-investments are a mostly passive investments.

In addition, most commercial properties that we assess for property syndication are to be acquired by licensed managers. This means that managers have an investment license and need to comply with all government requirements governing their activities. While a license itself is not an absolute guarantee for investors, it does provide a statutory benchmark for disclosures and undertakings. The manager should display their ASIC license number on all information publications.

The most common reason property investments underperform is this: the property itself simply isn’t good enough.

That’s why the most important factor in determining whether an investment is worthy of your consideration is the quality of the property.

Investors should choose properties that have excellent construction values, quality plant and equipment, and of course, a superior location.

Choosing a great property is a multifactorial decision, but if pushed to single-out the two most important investment features, they are these: we like investments which are versatile and/or tenanted securely or with multiple tenants.

We also like properties which are either tenanted securely or that have multiple tenants. For us, securely tenanted properties mean those with long-leases and/or quality tenants like government agencies. Multi-tenanted investments, like homemaker centres and suburban office blocks, have been star performers over the last few decades. Self-storage complexes, which might have up to 1000 storers paying monthly rent, are the gold-standard for providing reliable income. Although numerous tenants increase the need for management, having multiple sources of rent spreads the income risk. The property might lose one tenant, or maybe more than one. If there are numerous tenants, though, the property can still generate an income. And of course, if a property’s income is reliable, the value of the property, and the investor’s capital, is more likely to remain intact and in fact grow.

In every type of investing, there are times where the investment plan does not work out the way it was intended. This is true for freehold property investing, as well as for shares, stocks, bonds, and other financial instruments.

Co-investments are no different: there can be interruptions to income distributions caused by tenant defaults, rental holidays or maintenance issues. There is always the potential for a capital loss, which will affect the value of the capital originally invested. None of these issues are pleasant! Prudent investment at the beginning, though, can usually avoid exposure to many potential problems.

Of course, the greatest protection is the diversification of an investment portfolio with different types of properties.