Real Estate RisksThe real estate industry like all industries is exposed to multiple challenges and risks.
If not properly assessed mitigated and managed, these risks can negatively impact investment outcomes.
Synollo makes best effort to educate her members on the inherent risks in the industry, and in some cases goes a step further to proffer possible mitigants. This aims to ring fence our members investments and resources.
While not all the risks can be mitigated, the under mentioned list of risks need to be understood to guide our members investment and participation decisions.
The real estate industry like all industries is exposed to multiple challenges and risks.
If not properly assessed mitigated and managed, these risks can negatively impact investment outcomes.
Synollo makes best effort to educate her members on the inherent risks in the industry, and in some cases goes a step further to proffer possible mitigants. This aims to ring fence our members investments and resources.
While not all the risks can be mitigated, the under mentioned list of risks need to be understood to guide our members investment and participation decisions.
Illiquid nature of real estate
Real estate is an inherently illiquid asset class and Synollo may be unable to realise its properties as and when desired or required.
Macroeconomic and financial market conditions
Economic and financial market conditions can affect the availability of real estate development opportunities, the prices Synollo must pay to develop its assets, the rental returns those assets generate and the price that Synollo can obtain when it sells its assets.
General Market Risks
All markets have ups and downs tied to the economy, interest rates, inflation or other market trends. Investors can’t eliminate market shocks, but they can hedge their bets against booms and busts with a diversified portfolio and strategy based on general market conditions. Synollo provides an alternative savings and investment gateway for her members to manage market induced negative cycles.
Downturn in real estate markets
Real estate markets are subject to long term cyclical trends that can give rise to significant volatility in asset prices and values. A downturn in the real estate markets may, like a downturn in general financial conditions, affect the number of quality development opportunities available to Synollo, prices Synollo must pay to develop its assets, the rental returns those assets generate and the exit prices that Synollo can achieve. In mitigation, Synollo has a disciplined and focused investment strategy, investing in markets which it knows well, targeting opportunities with favourable supply/demand dynamics and with relatively low-end user demand or off-taker risk.
Control
Synollo may acquire only a minority interest in some of its assets. It may also rely on third party management or the performance of strategic partners in relation to its assets. In these circumstances Synollo may not have effective control of the management of an asset and may be unable to resolve management issues which it believes to be adversely affecting the performance of the asset. Synollo will aim to secure controlling stakes in all properties and projects, in order to minimise the first two of these issues. The third will be addressed by Synollo’s hands on approach to investment and project management.
Development risk
Failures by the manager of a Synollo owned development, or by the contractors employed by Synollo to carry out a development, could lead to development cost overruns, loss of rental income if the development is not completed on time or loss of opportunities for the Fund to realise the asset for the best possible price. Development risk is particularly acute in developing countries like Nigeria, where there is a shortage of competent development managers and contractors. Synollo’s pro-active approach to investment management using her well ecperienced in house project management team and subject matter experts is a mitigant against development risk, as problems can be identified and dealt with early.
Tenant risk
If Synollo is unable to secure tenants for its properties, this will reduce rental income to Synollo and potentially reduce the price that Synollo is able to achieve on exiting its investment in these properties. Rental income to the Fund will also be reduced if tenants default on their payment obligations.
Property valuations
Valuations of Synollo’s assets will be based on estimates by independent experts. Such valuations may be based on numerous assumptions. Valuations carried out in this way may not reflect the price at which the relevant assets could be sold.
Availability of exit opportunities
There is a risk that exit opportunities will not develop. For example, changes in economic conditions or market sentiment could mean that the number of willing buyers for real estate developments diminishes.
Catastrophes and terrorism
Real estate assets may be exposed to catastrophic risks such as fires, earthquakes and floods as well as acts of terrorism. Majority of these risks may be uninsurable or uninsured. An event of this kind affecting one or more of the assets could severely reduce or eliminate returns from that asset.
Land title
There is a risk that land may be sold to the Fund without title to the land effectively passing. Synollo partly mitigates this through her strict minimum title policy, which streamlines her investment to certain property title classes
Permits, licences and approvals
Synollo, or those acting on its behalf, may be unable to procure all necessary permits, licences and approvals to commence or complete a real estate development. Synollo will not commence a development project until it or its representatives hold all permits, licences and approvals identified as necessary in its due diligence.
Changes in tax laws
Tax laws and regulations are subject to change and it is possible that the tax regime in the country may change post-investment in a way which adversely affects returns from the investment. Synollo will conduct detailed tax due diligence on all of the investments and will monitor any changes in tax laws
Enforcement of judgements
There may be difficulties gaining or enforcing judgements in legal disputes or in obtaining adequate guidance about the prospects of an action to enforce Synollo’s rights. Additionally, it may take a long period of time to gain or enforce judgements.
Design Trends
Changes in demographics and lifestyle will inherently lead to style changes which may render certain developemnrs obsolete or undesired. Synollo structured and designed opportunities take this into consideration and aim to move with sustainable trends within the investment windows.
Financing Structure Risk
This relates to the investment’s financial structure and the rights it provides to individual participants. A senior secured loan gives a lender a structural advantage over “mezzanine” or subordinated debt because senior debt is the first to be paid; it has top place in the event of liquidation. Equity is the last payout in the capital structure, so equity holders face the highest risk. Synollo aims to participate in investments structured to benefit and protect her members position in the financing structure
