We noted that under the Managed Investments Act, you can put together a small syndicate of no more than 20 people involving a total of $2 million without issuing a formal prospectus or public disclosure document.
We recommended that you get a competent lawyer to talk you through the process of syndication, since there are complex legal provisions and restrictions under the Act. However, some of the steps you would need to consider include the following:
• Purchase a property subject to syndication. Allow yourself at least 90 days to put the syndicate together.
• Purchase the property in the name of a shelf company (a $1,000 company that can be bought ‘off the shelf’) with a unit trust arrangement. Investors can purchase units in the unit trust, simplifying and limiting their financial exposure to the project. Thousands of shelf companies are bought or activated every day by accountants and solicitors for this type of project. Companies and trusts make a good 20-minute discussion topic with your accountant and solicitor.
• Once you have acquired an option on the property, get a valuation based on the property’s end value. Get some letters from real estate agents confirming that there is some end value in terms of demand for the property once it has been developed as you intend.
• Get your projected development costs certified, perhaps by a builder, and put together a systematic feasibility study. The builder should then endorse the feasibility of the project and may decide to invest in the project themselves.
• Get your accountant to look over the numbers in the feasibility study to ensure that everything is in order. Get a letter of indication from your financier that they are prepared to offer first mortgage funding based on the equity provided by the full amount of your public raising.
• Get your solicitor to look over the documents and do any fine tuning, ensuring that you have complied with the detailed requirements and obligations of the Managed Investments Act.
• At this point, you can go to the market with an informal prospectus document and business plan encompassing all of the above. This should outline the structure, valuation, proposal and exit strategy.
It’s that (comparatively) simple!
You can put a proposal around to your friends, colleagues and anyone who would like to invest. However, remember that you can’t:
• take more than 20 investors
• take more than $2 million dollars in total (including any future liabilities)
• approach the same people again within 12 months with another scheme.
An executive brief provides busy people with an overview, before wading into the figures and allows me to present a bit of a sales pitch on the potential benefits of the project.
Attached to this were supporting documents, including:
• the proposed plan of the development (prepared by a surveyor)
• the regional context plan (aerial photo showing features of the site and surrounding location)
• the local context plan (street map showing the surrounding infrastructure laid out in the development plan)
• cash flow analysis of the life of the investment (profit and loss forecast and a month-bymonth cash flow analysis for the project)
• supporting verifications from the valuers, building consultants and other relevant parties as to the costs, end value, council permissions and so on.