Close Property Investment is seeking between £30m and £50m for Close high income properties (Chip), an offshore closed-ended fund that is also available within an Isa wrapper.
The fund will invest in an actively managed portfolio of UK commercial properties and aims to produce an income yield of 7.75 per cent gross a year with some scope for capital growth. If the fund has problems meeting the target yield, up to 40 per cent of the fees investors pay will be rebated to bolster the dividends.
The fund invests in property by buying the shares of a company called Beadgem. Beadgem was set up to buy the properties and this arrangement allows Close Property Investment to benefit from savings in stamp duty. It can be geared by up to 65 per cent, but the company directors have decided to limit the maximum gearing to 50 per cent.
The underlying property portfolio will consist of properties that generate a high level of income and good growth prospects over the next five to seven years. The initial portfolio has 20 properties containing 238 units, of which 93.7 per cent are let.
Although the fund invests across the UK, it currently has a bias towards properties in the Midlands. Property analyst Weatheralls has identified a strong demand for modern industrial buildings in the Midlands but there is a lack of demand for properties in the City of London and rents are being driven down in that market.
This fund could appeal to sophisticated investors looking to diversify. But as the target yield is not guaranteed, there is a risk that income will not be as high as anticipated if the property market changes and rental yields fall.