The company likens it to a buy-to-let scheme for the Sipp market, with the ability to use gearing to boost profits generated by 10-12 developments.
The fund aims for returns of 12 per cent a year by investing in a range of short to medium-term property development and trading projects that are expected to take around 18 months. This will be carried out in two stages, with profits from the first batch of developments rolled over into the second round of properties. Opportunities may include new build properties, changing the use of properties, renovation or refurbishment, land dealing and buying and selling within a property portfolio.
The fund will focus on the UK and will have a broader portfolio than the Seventh Special Opportunities fund. Up to £12m in bank debt may be added to the money raised from investors. Close Property Investment also believes the ability to make immediate cash offers will increase its purchasing power in the face of competition.
The managers also believe there will be opportunities to buy land where value can be added by gaining planning permission for residential or mixed use schemes.
According to Close Property Investment, the relative shortage of new developments in the market is likely to continue, which will result in attractive returns to developers. It says that unlike the late 1990s, the market is not experiencing a high level of speculative development, neither is it expected to suffer from rapidly rising interest rates on borrowing.
In addition, reduction in rental yields will mean increase in capital values which could lead to sales within property portfolios which have not been actively managed, providing room to add value by restructuring leases, carrying out improvements and letting vacant space.
Close Property Investment has already raised £2m and says as this will ensure the offer will proceed, it is now negotiating the purchase of three or four developments. However, one potential drawback is that the portfolio will contain properties with no existing tenants that have not been pre-let, which could raise potential problems. However, Close Property Investment says demand for the opportunities it is looking at is sufficiently strong.