“We started out doing syndications but quickly realised that the model wasn’t sustainable – for either the management company or the investor,” says Jurie Wessels, managing director of Capital Investments.

“From the point of view of the investor, it is undesirable to be locked into an investment in a particular property, or group of properties, without the ability to use gearing to expand one’s investment portfolio and without the ability to trade out of some properties and into new properties as area demographics change.

“Our investment model is actually very simple,” says Wessels, “We only invest in commercial properties – office blocks, industrial property and retail space.  The properties in our portfolio are geared with bank-issued property bonds.  As the rental income repays the bonds, we take the money out of the bonds again and buy additional properties.  It is this ability to add properties without receiving new investments that really enables us to add to our clients’ wealth, much more so than the normal, inflation-linked increase in the value of the existing buildings in the portfolio.  Syndications are structured to own particular buildings; they are structured not to have this ability.”

Recently, Capital Investments issued a cautionary announcement on all of the syndications under its management.  In October 2007, the company took over the management of the syndications previously owned by Dividend Investments.

In terms of the legislation governing cautionary announcements, details of the proposed transactions cannot be supplied before the relevant information is generally distributed to investors, but Capital Investments has confirmed that the structure of the existing syndications will change.

“The problem with syndications is that they make their money when they structure and market the original syndication,” says Wessels, “There’s no further fee and, consequently, no incentive for the management company – or promoter – to manage the syndication with care.  This problem was evident in the poor quality of the records as well as the poor state of management we encountered when we took over the syndications.

“When Capital Investments took over the management of the syndications that had been put together and marketed by Dividend Investments, we saw an opportunity to unlock value for investors because most of the properties in the syndications were good properties.  Nevertheless, although many of the properties were of high quality, the management of those properties and the financial affairs of the syndications owning those properties had to be improved.

“We at Capital Investments are very proud of what we have achieved in a very short time to bring the affairs of the syndications up-to-date.

"Keeping investors best interests at heart, we’ve spent a vast amount of time and money to record old transactions and bring records up to date, traced the flow of money between companies in the group, settled inter-syndicate loans, conducted audits of share registers and updated them," Wessels says. "We also supervised proper maintenance of the buildings and re-established good, professional relationships with syndication property tenants. The management team recovered as much unpaid rentals as possible and let empty space to reduce vacancies appreciably. All of this had to be done for the more than 70 syndications (and altogether more than 160 companies) in the group.

“While we cannot deny that investor interests were sometimes neglected by our management predecessors, we can assure syndication investors that Capital Investments is doing everything in its power to obtain the best possible results from the current situation.  In addition, we have to reassure the investing public that the investment advice they received from their financial advisors was sound, based on the available information, at the time.  The situation that Capital Investments is rescuing was created by poor management of the syndications by the original promoter.”

As with everything that Capital Investments has always done, the company wishes to remain transparent in its dealings with the syndications and is meeting with syndications members. In a recent letter to all of the syndication investors, Wessels reassured syndication members that a transaction will only be concluded after all members have received full information and given their approval.