Candy & Candy Growth Fund
The hype surrounding this proposed £100m fund is intense – but coming from luxury property brand Candy & Candy would you expect any less? Interior design gurus Nick and Christian Candy famously sold an apartment in their One Hyde Park development for £100m, so the move into fund management is something of a surprise.
Structured as a seven-year closed-ended Guernsey company listed on the London Stock Exchange, investment manager CPC plans to acquire property in central London's 'golden postcodes' (ranging from Mayfair and Chelsea to St John's Wood) from £2m to £10m each.
These will be rented out – although rental yields will merely cover costs. Investors, who must part with a minimum £25,000 each, are gambling on the capital appreciation at the end of the term. Candy & Candy will "undertake extensive renovation to the properties prior to disposal", emphasising its successful track record with private clients.
If the fund buys well, the value of its central London properties could rocket in seven years' time. But concrete details about expected investment returns, management fees and how the refurbishments will be funded have yet to be made clear.
At a presentation to investors this week, CPC said it hadn't ruled out buying properties in its own developments such as One Hyde Park. The brand is beloved by the super-rich, but investors seeking no-nonsense returns may find this is more of a lifestyle choice than a serious investment.
London Central Residential Recovery Fund
Also targeting the 'bulls-eye' of central London, this closed-end fund is on the way to raising £10m to acquire one- and two-bedroom flats for quality refurbishment, which it plans to let to professional tenants. Set to close in December, the minimum investment is £50,000 and the fund hopes to double the value of equity invested within eight years.
The second fund launched by London Central Portfolio, chief executive Naomi Heaton claims properties in her first fund and wider private client portfolio have maintained 95 per cent occupancy, despite the fallout from the financial crisis.
"The prime objective is capital appreciation," she says. "Investors will gear up to maximise returns, using interest payments to offset tax on rental income."
Designed to be 'self-financing', the rental income will cover costs, with investors holding out for capital appreciation of up to 15 per cent a year compounded at the end of the term. However, central London is a competitive market, and prices are already racing ahead.
No fund management fees are charged, but property manager LCP charges a finder's fee for acquisitions (2 per cent of property value), a project management fee on refurbishments, and a 15 per cent letting and management fee on the rental.
The fund's financing model is slightly unusual. Ms Heaton says gearing of 55 per cent will be applied to the equity raised but, rather than have a finance facility in place from the outset, the fund will invest the initial £10m then raise mortgage debt against its portfolio to buy more. This being the case, finance from the private banking arm of Fortis Bank has been secured at an attractive 1 per cent over base rate.
Residential Property Recovery Fund
"We are not glamorous. We won't be chasing Belgravia flats." So says Barney Buik, director of RPAM, fund manager of the Residential Property Recovery Fund. Set to close at the end of this year, the fund aims to snap up distressed residential property in the Midlands and northern England, which will then be leased to students and housing associations to provide income, then sold off at the end of the fund's life.
With a minimum contribution of £25,000, the closed-end vehicle aims to double investors' initial investment, and has now received pledges above its minimum requirement to proceed. Target equity is £10m, and £15m of finance is in place from "a high-street bank". The prospectus boasts that properties are available at a 50 per cent discount to 2007 prices, but is this still the case?
"There has been a severe shortage of stock, but it is now starting to appear," says Mr Buik, admitting that prices have risen 10-15 per cent in the meantime. "More stock is coming through from developers and administration cases, plus forced selling from investors who cannot refinance."
The fact that the fund is targeting properties in less glamorous areas may aid the acquisition process, but the uplift in capital values over the term is bound to be less dramatic. However, the current postcode lottery of how housing benefit rents are determined could boost rental yields.
Assetz Uk Residential Recovery Fund No 1
Distress is also the target of this fund from fast-growing property investment specialist Assetz. It plans to raise up to £25m by February to buy "below market value" property for rent in major UK cities.
With a minimum investment of £20,000, the closed-ended fund has a term of three to seven years. It is targeting a 15 per cent compounded annual return, "partly by rent, but significantly by the purchase price being undervalued," says Stuart Law, chief executive and founder of Assetz Group.
"If we can achieve very high returns in three years, we would rather return all the monies to investors," says Mr Law. "It is hard to judge how fast the market will come back." He envisages the fund will be 50 per cent geared, adding a number of high-street banks are "comfortable" with the fund.
Mr Law admits the term "below market value" has slightly grubby connotations (see the Investors Chronicle's expose of property investment clubs, ).. "The problem is: what other term can you use?" he asks. “In our selection criteria, we are looking for a high rental yield, not just a fall in valuation. It's a complex market, and we spend a lot of time on due diligence."
So where will Assetz source up to £25m of residential property?
"Many housebuilders have mothballed part-finished schemes," he says. "Others are willing to start smaller sites if they secure some early sales. We are looking to acquire product directly from LPA Receivers, who are acting as a proxy for the banks, who are trying to hide distress. And there are London developers who need to create liquidity by selling units."
The fund manager will take an annual fee of approximately 1 per cent of the underlying property value. Allsop Residential Investment Management is overseeing the leasing and maintenance of properties. When the fund is wound up, investors stand to receive the first 20 per cent of value uplift, and the fund manager takes 25 per cent of anything above that.
Assetz already offers this kind of property sourcing to direct clients, and has an established national network. However, scaling up its model could prove challenging.
DualInvest
DualInvest is a different animal, but its apparently complicated structure is worthy of further investigation. Describing itself as a "residential income fund", it plans to acquire a 65 per cent interest in individual residential properties from vendors who urgently need liquidity. The properties will be leased back to the vendor on a two- or three-year term, with an upfront rental payment negotiated at point of sale. This means the fund will pay a 13.5 per cent coupon during the first year to unit holders, which is intended to equate to a cumulative income return of 7 per cent during the life of the fund.
"We are a form of cheap financing, and the model is very much like equity release," says property manager Harvey Shulman. "Effectively, we are warehousing these properties for two to three years. The people who are selling to us don't want to be rid of the properties, and co-ownership is a way of helping them refinance or remortgage their portfolios on more attractive terms than the banks are offering. Typically, lenders are demanding 8 per cent over base, plus a huge arrangement fee."
Unwilling to sell out in a rising market, in two or three years' time expected capital appreciation means the vendors will be able to refinance and buy the properties back, or they will be sold in the open market. The vendor is entitled to 85 per cent of the upside. However, if the value of the property falls, the vendor's 35 per cent equity stake stands to be eroded first.
Distributed by Smith & Williamson, the fund has already sourced options to buy over £10m-worth of stock. It intends to raise £25m, does not use any gearing, and requires a minimum investment of £10,000.
Units in DualInvest will be tradable on the Channel Islands Stock Exchange, and individuals investing through a self-invested personal pension (Sipp) may receive up to 40 per cent tax relief.
"I have optioned enough property to prove that this model works," says Mr Shulman. "I am buying from professional buy-to-let landlords, not distressed individuals. We are not looking to buy new-build, just run-of-the-mill three-bedroom semis. Personally, I think this is an attractive alternative to buy-to-let."
The concept may be slightly harder to understand, but we think this fund is worth doing the homework for.
