Direct cost real estate model as wiser choice

Updated March 20, 2009 12:00 AM

Cuervo

MANILA, Philippines - It has now become to be called several names, communidades, build-your-own, build to own, direct cost, cost plus. It all means one thing – real estate syndication.

Jose Mari Cuervo, CEO of Cuervo Appraisers, one of the country’s most respected property valuers says those looking to buy real estate for personal use or as an investment, should look into real estate syndication to get the most value for their money.

“Being exposed to the real estate industry for most of my life, I had the opportunity to be involved, as an investor, in the very first Communidades (Spanish for “community”) project in the Philippines,” says Cuervo. It was called Parque España, a residential high-rise building in Filinvest Alabang.

“The project was a success due to the clever development model, despite it bring launched in the midst of the Asian Crisis in the late 1990s. The units were delivered on-schedule and within budget,” adds Cuervo.

The Communidades development model, which has been around for the last 40 years, was brought to our shores from Spain by Quito Moras.

A professional, or company, called a syndicator identifies a location, pulls together proponents such as an architect, project engineers, participating banks, contractors, marketing consultants and investors for a specific development. The syndicator charges a “professional fee “ for its services — usually about 10 to 15 percent of project cost. It does not make any profit over and above the project cost like a developer would normally make. This is the reason why real estate syndications are explained as being offered “at cost” to the market.

The traditional developers’ profits range anywhere from 30 percent and higher. In a syndication, this margin goes directly to the investor in the form of savings. This is why syndications are usually 40 percent lower in cost than developer-led projects in the same vicinity with similar specifications. The investor earns right when he buys into syndication from the capital gain derived.

Since Parque España, other groups have taken and evolved with similar concepts. Architect Gilbert Yu, for example, has launched the BTO or “Build-To-Own” concept, which is also a real estate syndication. Another group, the BYO (“Build-Your-Own”) Corporation has also made a name for itself in the high-rise industry.