How Helmsley manages the risks of property syndication

Illiquidity: no market, but a marketplace and a long-stop

The risk. A syndicate share cannot be sold on an exchange. There is no daily price and no guaranteed buyer. In a weak market there may be no buyer for a period.

What we do. Three things, and they work at different levels.

First, you are free to sell at any time. The deeds expressly preserve the right of any beneficial owner to sell their interest whenever they choose. The only condition is that the buyer signs a deed with the trustee on the same terms, so that everyone in the syndicate is on an identical footing.

Second, we run the marketplace. We have been matching buyers and sellers of syndicate stakes among our own client base for around forty years, and we currently transfer something in the order of £2 million of stakes a year. The price is a negotiation between the buyer and the seller, not a figure we set. Every property is independently valued each year, and that valuation informs the conversation, but what someone actually pays does not necessarily match it. Historically the great majority of stakes have changed hands at par, with some above and some below.

Third, there is a long-stop in the deeds for the case where no buyer can be found and an investor genuinely needs the matter resolved. After what the deeds call the Initial Period, which runs until the next rent review on the building has been settled, any one or more beneficial owners can require the trustee in writing to exercise the trust for sale. The trustee must then market the building and use best endeavours to sell it within twelve months. It is a right held by a single investor, not something that needs a majority, and it exists so that a holding cannot be left stranded because everybody else is content to sit still.

There is also a specific provision for pension holdings during the Initial Period: where a beneficial owner is a pension fund and a beneficiary under it dies, that owner can require the property to be sold, with the trustee then having two years to do it. Illiquid assets and death interact badly, and this is the deeds' answer to that.

What this does not fix. None of it is a promise of liquidity, and the long-stop is a blunt instrument rather than a redemption facility.

Finding a buyer takes time, usually weeks or months, and there are periods when it takes longer or does not happen at all. The price is what a buyer will pay on the day.

The forced-sale route sells the whole building, which means the other investors are taken out too whether or not that suits them. It carries a cost risk: if the property is still unsold two years after the notice, or if the investor who served it changes their mind, that investor has to reimburse the other owners for the abortive costs, including marketing, agents' fees, valuation fees and legal fees. And it is not available during the Initial Period, other than in the pension death case above. It also does not entitle you to be bought out; in practice other investors sometimes offer to buy a stake rather than see a building sold, but that is a commercial outcome and not something the deeds give you a right to.

Anyone who might need their money back at short notice should not be in this asset class, whatever mechanisms exist.

Single tenant risk: one building is a binary outcome

The risk. A syndicate owns one building. If its tenant fails, the income from that building can stop entirely, and the value falls with it.

What we do. We cannot diversify a single building, so we do not pretend to. What syndication allows is for an investor to spread a given sum across several buildings, tenants, sectors and towns rather than putting it all into one. Someone whose capital would buy a small share of one building can instead hold smaller shares in several, and many of our long-standing clients have built up interests across a number of syndicates over the years.

Before we buy, we look hard at the tenant rather than at the length of the lease: the filed accounts, which company is actually on the lease and what stands behind it, how that particular unit trades, and above all whether the building would re-let if the tenant walked out tomorrow. A moderate tenant in an excellent location is a manageable problem. A strong tenant in a poor one is a reprieve.

What this does not fix. Spreading across syndicates takes capital and takes time to build up. The holdings are still all commercial property, largely in the North of England, all managed by the same firm, so they will not behave independently in a downturn. And our judgement about a tenant can simply be wrong. It has been before.

Borrowing: we do not, and it costs us

The risk. Debt magnifies losses as well as gains, puts a lender ahead of investors for income, and lets a lender force a sale when covenants are breached, even where the rent is being paid in full.

What we do. We buy with cash. Every syndicated building we have arranged has been bought without bank debt, and that has been the position since 1980. We have owned property through the early 1990s, through 2008 and through the pandemic, and in each of those periods the absence of a lender was the thing that allowed us to wait rather than sell.

We are straightforward about what that choice costs. In a rising market a geared investor makes more, and it is perfectly arguable that our returns over the years would have been higher had we borrowed. We accept the lower ceiling in exchange for not carrying the risk that has finished more property investors than any other.

What this does not fix. Not borrowing removes one specific risk. It does nothing about a tenant failing, a building falling in value, a unit standing empty, or a stake being hard to sell. Debt-free is not the same as low risk, and we would be uncomfortable with anyone reading it that way.

Void costs: getting ahead of the problem

The risk. When a unit is empty the rent stops but the costs do not. Business rates fall on the owner after the relief period, insurance costs more on an empty building, and there may be an incentive to pay to attract the next tenant.

What we do. The buildings are actively administered rather than left alone between rent days. Colenso Property Services, our sister company, inspects them, deals with occupiers, arranges repairs, handles insurance and collects the rent, and reports back to the owners. The work is largely about acting early: tracking lease expiries, breaks and reviews well ahead of the date, talking to tenants about their intentions before they have made up their minds, and marketing space before it is empty rather than after. Where a building needs work to be lettable, we would rather do it ahead of a void than during one.

We also hold something back from distributions for known future costs where that is prudent, and we say so in the statement when we have.

What this does not fix. No amount of active management makes a tenant stay, or conjures a replacement in a town where nobody wants the space. Voids happen, they cost money while they last, and they can last longer than forecast. Distributions fall when they do.

Falling values: the point is not being a forced seller

The risk. Commercial property values move with interest rates, sentiment and the strength of the income, and they have fallen sharply more than once within living memory.

What we do. Two things that work together. We try to buy well in the first place, which mostly means buying where the supply of good space is genuinely constrained and demand is durable, rather than chasing yield in places where neither is true. And because there is no lender, nobody can compel a sale at the bottom of a cycle. A fall in value is a fall in value; it only becomes a permanent loss if somebody sells into it.

What this does not fix. Values still fall, and a stake sold during a downturn will reflect that. Buying well reduces the chance of a bad outcome. It does not remove it.

Ageing buildings and capital costs

The risk. Buildings age. Plant and roofs fail, specifications date, and energy efficiency rules impose costs. A building that cannot be let without significant spending is a liability rather than an asset.

What we do. We plan for it rather than react to it: regular inspection, schedules of repair where they are needed, and an eye on what a building will require in five years rather than only this year. Where a building needs more than maintenance, our development side means we can take it through design, planning and construction ourselves, which is not something most investment managers can do. Several of the buildings our clients own have been substantially improved that way.

What this does not fix. Capital expenditure costs money, and money spent on a building is money not distributed. Listed and historic buildings, of which we own a good many in York, cost more to look after and limit what can be done to them. Where energy rules require work, that work has to be paid for.

How we are paid, and where our interests sit

The risk. A manager's fees come out of investors' returns, and the way a manager is paid shapes the decisions it makes. A page about managing risk that says nothing about remuneration is avoiding the question.

What we do. Every fee is set out before you invest, in the documents for that syndicate. In broad terms there are up to three elements.

We make a profit on the initial purchase, which is disclosed at the outset. There is then an annual fee for the asset and property management, charged as a percentage of the passing rent; where we quote a yield in a syndicate brochure, it is stated net of that fee, so what you are shown is what reaches investors rather than a gross figure with the costs still to come off. And where a project has a value-add element with a planned exit after a set period, we will seek to agree a share of the uplift in value, agreed on day one rather than negotiated later.

We sometimes invest alongside our clients, though not in every syndicate.

What this does not fix. Fees reduce returns, and a profit on the initial purchase is a real conflict that you should understand rather than take on trust: our interest at the point of sale is not identical to yours. Because we do not co-invest in every syndicate, you should not assume alignment through shared exposure in any particular one. Ask what we are being paid on the syndicate in front of you, and check it against the documents.

Manager risk, and what happens if Helmsley failed

The risk. Where somebody else manages the asset, you rely on their competence, their honesty and their willingness to tell you the truth when something goes wrong. And a ten-year investment may outlast the arrangements it was set up under.

What we do. The structure is designed so that the buildings do not depend on the firm continuing.

Helmsley Securities Limited is authorised and regulated by the Financial Conduct Authority under firm reference number 665743 for the operation of unregulated collective investment schemes. It holds each building as bare trustee for the investors in that syndicate, who own it beneficially as tenants in common. The building is not an asset of the firm and does not sit on its balance sheet, so it is not available to the firm's creditors.

The trustee can only retire if it is immediately replaced by another trustee with the same FCA permission, or has appointed an authorised operator. The beneficial owners, acting unanimously, can remove the trustee and appoint a replacement, and a retiring trustee must execute whatever is needed to vest the property in the new one. Day-to-day property administration is done under a separate agreement by Colenso Property Services, which is expressly not the trustee, and rent is collected into a separate client account rather than into the firm's own money. So if the trustee had to be replaced, the buildings would continue to be run and the rent to be collected while that happened.

On decisions: matters such as selling the building, letting it, agreeing a rent review or appointing the managing agent are decided by the beneficial owners, with a 75% majority by value binding everyone. Disputes go to an independent surveyor appointed, failing agreement, by the President of the RICS. Investors are entitled to be given the names and addresses of the other beneficial owners, which is also what makes the internal market in stakes work.

On competence: we are a small team of specialists working in a market we know in detail, rather than a general investment business that also happens to do property. The people who assess a building before we buy it are the same people who manage it afterwards.

What this does not fix. Regulation of the operator is not protection of the investment. There is no Financial Services Compensation Scheme cover and no recourse to the Financial Ombudsman Service if a syndicate loses money. Colenso is a related company rather than an independent third party, so the separation between trustee and managing agent is a structural safeguard rather than full independence. Removing the trustee requires unanimity among the beneficial owners, which is a high bar and would not be quick. Investors also indemnify the trustee against costs and liabilities it incurs in that role, shared in proportion to their holdings. And a qualified team can still make poor judgements.

You should do your own due diligence on us. Our guide for professional advisers sets out the questions we would expect a good adviser to ask, and we would rather be asked them.

Succession: a business that outlives its founders

The risk. A long-established private firm can depend heavily on a small number of people, and an illiquid investment may outlast them.

What we do. The board has been deliberately renewed over the past few years, with new directors and shareholders appointed from within the business, so that responsibility for client relationships and for the buildings does not rest with one generation. It is a live piece of work rather than a solved problem, and it is a fair question to ask of any manager you are trusting with a ten-year investment.

What this does not fix. Any business depends on the people in it.

What we cannot do anything about

Some risks cannot be managed away by anybody, and they deserve naming.

Tax treatment and property legislation change, sometimes materially, and have done so repeatedly in recent years. There is no compensation scheme behind these investments. The wider economy, interest rates and occupier demand are outside any manager's control. And illiquidity is inherent in owning a share of one specific building. Everything described above reduces its consequences rather than removing it.

The honest summary

Our approach is to avoid one large risk entirely by not borrowing, to reduce several others through the way we buy and manage, to give investors a route out that has worked for forty years and a long-stop in the deeds for when it does not, and to be clear about what remains.

What remains is substantial. Capital is at risk. Income can stop. Values can fall. A stake can be difficult to sell, and may be sold for less than you paid. These investments are suitable only for a limited group of investors, using money that can be left alone for years, and nobody should commit to one without taking independent financial advice.