Look beyond bricks and mortar and invest in the new generation of property funds
IF YOU don’t want to blow your whole bonus in one go, or you don’t have the appetite for owning a buy-to-let, then there is an alternative: investing in a property fund.
A number of new funds have recently launched, designed to capitalise on the steep losses seen across the board in residential and commercial property. One of the most high-profile of these launches is the Candy & Candy Growth Fund, set up by brothers Nick and Christian Candy – the dynamic developing duo behind One Hyde Park – with an aim to raise £100m and provide returns of around 10 per cent a year. The fund will buy discounted residential properties in prime areas of London directly from receivers or forced sellers. These homes will be rented out for a minimum of three years and, before being sold they will be given the full Candy & Candy luxury makeover. The minimum investment is £50,000, and the fund is likely to have a lifespan of between five and seven years.
Another fund that launched this summer is the Sativa Capital UK Real Estate Development Fund, which is far more expensive to join, with a minimum investment of £500,000. The plan is to work from an early stage with experienced developers that have a proven track record, as well as investing in other areas of property: commercial, retail, student and nurses’ accommodation and more. The Sativa fund plans to raise £50m in total, which it will invest in sister company Ypres Rose developments, among others. There will be a 1 per cent running fee – the term of the fund hasn’t been decided yet, but is likely to be between three and five years.
What the Candy brothers and Sativa Capital funds have in common is that they both contain a residential element – a relatively new development for property funds. Up until a few years ago, property funds concentrated on commercial projects, ideally where an established tenant was signed up on a long-term basis and the risk was perceived as low. Now, funds are incorporating a residential element, and “vulture” funds, designed to snap up distressed assets, are mushrooming.
“Whereas commercial property already has tenants in place and the income is relatively steady, investing in the developing process is perceived to be higher risk and there are more factors that can go wrong,” says Rob Finch, of Sativa Capital. “But we believe the majority of risks can be managed, and the rewards are greater: before the recent price falls seen in the past few years, commercial property was offering returns of around 7 to 8 per cent, whereas we believe you can get 20 to 25 per cent in our development fund.”
SOLID PROJECTS
Sativa isn’t a vulture fund – which relies on an increase in values during a market where property pundits are predicting a long, drawn-out recovery. Instead, it claims to invest in solid projects where there is proven demand; where experienced developers can add value and manage costs effectively.
“The main advantage of investing with us is you gain exposure to property development, but it’s an entirely passive investment. With us, unlike putting your money into a buy-to-let flat – which you have to manage, worry about void periods and incur running costs – you just check your updates, and come and view the properties if you like,” says Finch.
Other property funds include Dualinvest, where the minimum investment is £10,000 with an estimated average annual return of 7 per cent for the three-year life of the unit trust. It is designed to take advantage of the difficulties that many house-builders are having in raising finance, by buying new homes from developers and leasing them back to them. One specialist fund that has performed well is Braemar Group’s UK Student Accommodation Fund, which is open-ended with a minimum investment a £10,000.
“As you would expect, the past few years have been pretty dire for property funds, but long-term they have been profitable,” says Clive Rose, director of wealth management at Savills Private Finance. “Eighteen months ago we were avoiding including property investments in our portfolios, but now we’re adding them back again. Like all things, you need to be aware of the risks. Property funds tend to appeal to people who understand the property market, and in my opinion you have to be able to afford to lose the money.”
“The more specialist funds are highly speculative – you can’t kid yourself that this is a safe investment – but if it does work, you’ll be handsomely rewarded,” he adds.
RESIDENTIAL PROPERTY FUNDS INVEST
Candy & Candy Growth Fund
Minimum investment: £50,000
Raising: £100m
Target annual return: 10 per cent
Lifespan: 5-7 years
www.smith.williamson.co.uk
Dualinvest
Minimum investment: £10,000
Target annual return: 7 per cent
Lifespan: three years
www.smith.williamson.co.uk
Prime London Capital Fund
Minimum investment: £1,000
Target annual return: 9 per cent
Lifespan: open ended
www.dngim.com
Assetz Residential Property Fund
Minimum investment: £20,000
Raising: £25m
Target annual return: 15-20 per cent
Lifespan: five years
www.assetz.co.uk
Sativa Capital UK Real Estate Development Fund
Minimum investment: £500,000
Raising: £50m
Target annual return: 20-25 per cent
Lifespan: three years
www.sativacapital.com