When a client invests in a project, they are allocated units in a Unit Trust, proportional to the amount of capital invested: $1,000 equals one Unit. At the same time, they receive shares in a controlling entity responsible for the purchase and development of the land: a Special Purpose Vehicle. The special purpose vehicle (also known as an SPV) is a registered proprietary limited company which is incorporated for the purpose of the property developments completion. The SPV functions as a legal entity which collectively represents all investors in a project. Investors also have voting rights in this Company, which for example can be exercised should the management agreement require major changes.
The Joint Venture agreement to undertake a project is between Lion Property Group and the Proprietary Limited Company.
The development site for the project is purchased by the Company which represents the investors, using investor capital. As the investors are shareholders, they are entitled to the assets of the Company to recoup their investment in the unlikely event of an insolvency or other failure. This means that investor capital is secured against the value of the development site itself. If the worst-case happens, investors can sell the site to get their capital back, or take another course of action, depending on what the shareholders vote to do.
While the land is collectively owned by the investors, they don’t want to be doing the work of actually undertaking the development. Which is why the Company appoints Lion Property Group as the Development Manager via the management agreement. This agreement also outlines the plan and overall intended process for the development, including the type and number of properties to be constructed.
As the Development Manager, Lion Property Group is responsible for completing the development on behalf of the Company and the investors. This involves, but is not limited to:
This investment structure is utilised because it ensures that investors are protected, but grants us the ability to undertake the development in a timely and efficient manner in line with investor expectations.
Each investment opportunity offers a different return to investors based on the feasibility study we have conducted for that project. Some projects feature contractually-fixed minimum returns, and some include delay compensation, providing investors with additional returns if the project runs over the listed investment term. Not all opportunities include these features, so carefully review each opportunity’s Information Memorandum and Investment Agreement to understand what is offered.
We accept any investment over $250,000. Smaller investments may be accepted at Management’s discretion based on availability within a project. The legal structure we use to undertake a project has a limit on the number of parties that may participate in the project, and so we may only accept a small number of investors who meet the capital requirements.
No. You are investing capital to fund a property development project and you receive returns upon completion. You do not receive ownership of any of the properties constructed in the project unless you choose to buy a property as a separate transaction. See ‘How are these investments structured?’ for more information.
Yes. Each project is an independent entity and is unrelated to any other projects currently being managed by Lion Property Group. Monies from one project are not used in other projects. You may invest in multiple investment opportunities depending on the amount of capital you have to invest and our current availability.
Yes. SMSFs can be used to invest in Unit Trusts, and most of our investments are structured as Unit Trusts. To ensure that your SMSF investment is compliant with ATO regulations, we recommend engaging the services of licensed professionals to assist if you have not already done so.
We provide our investors with regular updates on the progress of all projects via this website, direct email, and a private Facebook group.
Our investor community is a diverse group of Australian and international investors united by their need for a reliable investment model that provides them financial freedom and flexibility.
See ‘How are these investments structured?’
It depends. Some projects are simply not suitable to be sold off-the-plan, and so lenders will not require them. Other projects that involve a large of properties usually do, but ultimately it comes down to the individual lender and what their requirements are.
We endeavour to sell our projects off-the-plan anyway, prioritising those that require pre-sales for the lender to release finance.
All investments have an element of risk; for property development one of these risks is the possibility of the project being delayed. We cannot fully alleviate the possibility of a project running over schedule as some factors (such as Council approval and construction) are outside of our direct control.
However, this is where our experience and strategies for risk mitigation come into play. Our practical experience from managing nearly twenty property development projects has taught us realistic timeframes for each stage of the development process as well as likely obstacles that may arise. Outside of our own experience, we also utilise the services of trusted external experts such as town planners and construction managers to assist where required and provide realistic timeframes.
In the event that a project is delayed we may provide investors with additional returns as a form of delay compensation. See each offer for specific details.
We can never be certain that a project will be profitable; all investments have an element of risk. However, before proceeding with any development we conduct a thorough feasibility study to ensure that the site meets our criteria and standards. We also obtain advice and valuations during the design phase based on comparable property sales to ensure that our expected sales prices and subsequent calculations are realistic. We also add a contingency into the budget, typically 5% but varying based on the level of risk involved in the project, to ensure that it will be completed and sufficiently profitable.
Unlike a traditional buy-and-hold property investment strategy, our ability to achieve a profit as a property developer is not inherently tied to market performance; as long as the combined sales price of the developed properties is higher than the cost to build them, we still achieve a profit. There are a variety of factors other than final sales price that also influence how much profit a particular development will generate, such as the purchase price of the land, construction costs, and loan interest. This allows us to achieve a profit from the lucrative property market without being completely dependent on the performance of the market.
We do, it’s just at a later stage of the project. Each of our development projects go through at least two phases of funding. The first phase occurs at the beginning of the project to fund land acquisition. The second occurs approximately half-way through the project to fund construction.
To understand our funding process you first need to understand how banks and lenders provide loans. Lenders require a certain amount of capital to be present in order to satisfy the loan-to-value ratio in their lending criteria. The reason that we don’t use our own operating capital is that by doing so we would restrict the total number of projects that we can simultaneously undertake, so instead we opt to obtain this capital from investors. This strategy allows us to offer more opportunities across a wider range of projects.
Another key thing to understand is that a property development project only generates a profit at the end, once the properties are sold. In order to mitigate this, the construction loans that we access take advantage of capitalised interest, which means that the interest is paid as a lump sum at the end of the term, rather than in regular instalments.
With these factors in mind, the most efficient and cost-effective way to fund a development project is to use investor capital to fund site acquisition and a construction loan from a lender to fund construction. This funding strategy means that we only have to pay back the loan and investor capital at the end of the project, when there is suitable liquidity within the project to do so.
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