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Asked Questions

Please find below responses to some frequently asked questions in relation to investment in Fawkner Property unlisted property trusts.

If you have any further questions that are not covered below, please contact us and we will assist you personally.

As a commercial property syndicator, Fawkner creates unit trusts, which purchase commercial properties, and offers the units to investors.  Commercial properties include:

  • Retail properties, such as shopping centres, large format retailers, service stations and convenience food outlets,
  • Office properties, occupied by businesses, professions and government organisations; and
  • Industrial properties, housing manufacturing, storage and distribution.

SMSF trustees invest in property syndicates to obtain reliable regular income payments, while protecting their capital from inflation.  Property syndicates provide regular income from monthly rent payment from tenants in commercial properties.  With annual rent increases, the value of the properties rises over time, keeping pace with inflation.

There are some important contrasts:

  • The syndicate is professionally managed, so you do not need to be involved in hiring managing agents, leasing decisions, capital expenditure decisions, owners’ corporation meetings and the like;
  • Capital expenditure is allowed for by the manager, so you will not need to come forward with more money to upgrade the property, for example;
  • If there is a loss, your downside is limited to your investment, whereas in a geared residential investment, the lender has full recourse to your other assets;
  • Commercial properties are not subject to residential tenancies legislation, which limits the field of action of the landlord;
  • While residential property leases are for a maximum of one year, with a market rent review each year, commercial property leases are longer – sometimes longer than 10 years – and have fixed or CPI increases each year, giving greater certainty of income;
  • Dealings with commercial tenants are based on business principles, whereas dealings in relation to the principal place of residence of a tenant can have an emotional overlay.

All trusts have a fixed term – usually six or seven years – which is set out in the disclosure document.  At the end of the term an Exit Offer is made to investors, giving them the chance to exit at a nominated exit price, determined by the trustee in accordance with the deed (Fair Value).  If 75% or more elect to exit, the trust is wound up.  If less than 75% wish to exit, buyers are found for their units at the Fair Value.  Priority is given to existing unitholders.  If units remain unsold after six months, the trust is wound up.

Private Property Trust No 11 and subsequent trusts have provision for an annual minor liquidity event, if the trust continues after the first Exit Offer.  This allows for surrender of a specified number of units at Fair Value, up to 5% of the trust.  These offers are discretionary and depend on the trustee being satisfied that the offer is in the interests on unitholders.

There is limited information for the commercial property investor.  Despite vendor statements, with more or less disclosure depending on the jurisdiction, and registered leases (other than in Victoria), there are many side deals between landlord and tenant and, except in major shopping centres, the trading position of a commercial tenant is difficult to find out.


Tenant demand for commercial property is what economists call a “derived demand” – meaning that the commercial real estate is used in the production of goods or services for sale by the tenant.  Understanding the drivers of the business of the tenant gives insights into the prospects of the tenant and the reliability of the rental stream.  It is not much use having fixed annual increases in rent if the higher rent becomes beyond the capacity of the tenant to pay.


Becoming knowledgeable in the business of particular types of tenants is exploiting the lack of information that pervades commercial property markets.


While Fawkner Property people have long experience in commercial and industrial property broadly, we have developed market leading expertise in motor vehicle fuel and convenience retail, as well as early learning.

There are risks in all investments – an investment return above the “risk-free” rate is a reward for taking investment risk.  The investment community uses the return on the 10-year Australian Government Bond as a measure of the risk-free rate.  As of March 31st 2019, this was 1.90%, so investors looking at a return above this are being rewarded for taking risk.


The investment risks of a property syndicate can be divided into two broad categories – the risks inherent in property investment, such as tenant default, and the risks associated with investment through a trust, such as increased management costs.


The best description of the investment risks of a particular syndicate investment is found in a separate section of the disclosure document for that syndicate.

One of the risks of commercial property investment is tenant risk.  This includes the risk that:

  • The business of the tenant fails and the tenant is unable to continue to honour the lease obligations;
  • The tenant completes the current term of the lease but does not renew;
  • And there is a market review and, based on the business of the tenant, the rent reduces.

These risks and the way in which Fawkner Property deals with these risks is set out in a separate section of the disclosure document devoted to risks of investing.

Fawkner acquires first mortgage finance with a loan to value covenant of, say, 60%, with loans drawn to 55% to allow for exigencies.  Interest rate markets are continually monitored to assess the utility of interest rate hedges.  Fawkner may also issue unsecured notes.  The purpose of using borrowed funds is to enhance the returns to investors and the tax-effectiveness of those returns.

Most property investments are financed partly with borrowed funds, as lenders offer low rates of interest for loans secured by real estate.  Gearing refers to the amount of borrowed funds compared to the value of the assets of the fund or syndicate – so, if the principal of all loans borrowed by a property fund is half the value of the total assets (generally, property and cash) the fund is said to be “50% geared”.  In a fund which is 50% geared, the value of the investors fund will rise or fall by 20% if the value of the total assets rises or falls by 10%.

As a general rule, the tenant is fully responsible for all tenant’s property, such as the fittings and equipment installed by the tenant and for the maintenance and repair (but not replacement) of the plant and fixtures installed by the landlord.  Repairs of a capital nature are usually the responsibility of the landlord.


The tenant is responsible for water, gas electricity and communications services used in the business and for a share of common area services, cleaning and maintenance as well as waste treatment and removal.


The general rule can be varied by statutes affecting the landlord-tenant relationship and, subject to statutory provisions, by the terms of the lease.

The trustee does not rely on further bank borrowing to pay the expected capital expenditure and tenant incentives required to maintain the income from the properties.   The funds from operations are reduced by an allowance for expected capital expenditure and tenant incentives before the rate of distributions is struck.  This reduced amount is known as “Adjusted Funds From Operations” (AFFO).

The trustee ensures that distributions do not exceed AFFO.

If adverse circumstances require that distributions be reduced or suspended to ensure the viability of the trust, Fawkner will reduce its management fee proportionately.

Management of the properties involves lease administration (getting in the rent, keeping good relations with the tenant, negotiating rent reviews etc) and ensuring the property is well presented (common areas are clean, traffic control items are functional or clearly marked, plant and equipment is well maintained, promotional signage is effective etc).


Fawkner Property has developed a “vertically integrated” way of working, under which we purchase the property and carry out leasing and property management.  This gives us a direct relationship with the tenants which can be a useful advantage in retaining tenants, finding replacement tenants and due diligence on prospective property investments.


Through in-house property management, Fawkner Property also has direct control of budgets for repairs and maintenance and of the proper presentation of the property, assisting the success of the tenants’ businesses.

Fawkner Property charges a market rate for property management and leasing activity – the same charges facing an owner holding the property directly.  The property management fees are recoverable from tenants in some circumstances.

Fawkner Property charges an annual fee for managing a syndicate and a fee for setting up the syndicate with the investment properties.  These fees are clearly explained in a separate section of the information memorandum or product disclosure statement for the syndicate.

If the securities of a property fund are traded on the Australian Securities Exchange (ASX) the property fund is “listed”.  A listed property funds is known as a “REIT” (short for Real Estate Investment Trust) or, in an international context, an “A-REIT”.  The securities of “unlisted” property funds and syndicates are not trades on the ASX and, as a result, holding unit in an unlisted syndicate is more like owning a share in the properties, so unlisted property funds and syndicates are often termed “direct” property investments.

For investors, the key differences are:

  • Capital stability – as REIT securities are traded daily, the value of the investment can be volatile (in the GFC, the value of REITs fell by 70% in a few months), whereas the value of s syndicate investment changes significantly only when the value of the property portfolio changes, which is infrequent;
  • Liquidity – an investment in an unlisted property fund is more like investing in property directly, where capital can be withdrawn only when the property is sold, while securities in a listed REIT can be bought and sold daily;
  • Complementing a share portfolio – the value of an investment in a listed REIT is affected by external factors that affect the whole sharemarket, whereas these factors do not affect the value of an investment in an unlisted property fund, so an investment in unlisted property funds is complementary to an investment in a share portfolio;
  • Regular income – unlisted property funds generally pay distributions quarterly or (as with Fawkner Property syndicates) monthly, whereas most listed REITS pay distributions twice per year;
  • Size of investment – an investment in a listed REIT can be as little as a few hundred dollars, whereas investment in an unlisted property fund requires at least $20,000, typically (wholesale property syndicates require a higher amount, typically $100,000); and
  • Gearing – as unlisted property funds do not have to allow for daily fluctuations in market value, they can cope with a somewhat higher proportion of borrowed funds.

Property syndicates are unit trusts and investors hold units in the trust.  The taxable income of the trust is worked out as if the trustee were a resident individual taxpayer.  The trustee must distribute to unit holders an amount which is not less than the taxable income and unit holders pay tax at their applicable marginal rate.  So, for example, an SMSF in accumulation mode pays tax on the distributed taxable income at 15%.

This tax treatment, where the trust does not pay tax and investors pay tax at their own marginal rates, is sometimes called “flow-through” tax treatment.

If a unit holder receives a distribution which includes an amount in excess of the taxable income of the trust, that amount is called “tax-deferred”.  The unit holder does not include the amount in assessable income but the amount reduces the cost base of the units, for the purpose of assessing capital gains tax, when the units are sold or surrendered.

When the trustee purchases an investment property, the income tax laws treat the purchase as the acquisition of three separate assets:  land, buildings and fittings, plant and machinery (such as air conditioning or ceiling tiles).


Items of fittings, plant and machinery wear out with use and have to be replaced.  The financial manifestation of this wearing process is that the value decreases steadily over the useful life of the item.  The annual decrease is called depreciation.  Depreciation is an allowable deduction and reduces the taxable income of the trust but does not affect the cash receipts of the trust.


There is also an allowable deduction for the construction of the building, being a small percentage of the cost of construction each year.

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