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Close eye on rents

CLOSE PROPERTY INVESTMENT

Fixed Uplift Properties

Type:
Closed-ended fund

Aim:
Growth and income by investing in UK commercial property

Minimum investment:
Lump sum £25,000

Investment split:
100% UK commercial property

Place of registration:
Isle of Man

Charges:
Annual 3.5%, performance fee 20%

Commission:
Initial 3.15%

Tel: 0870 733 3773

Close Property Investment&#39s fixed uplift properties is an offshore closed-ended fund that invests in UK commercial properties that have a rental increase of at least 2.5 per cent at the next rent review.

Arch Financial Planning managing director Arthur Childs hopes that the innovation shown by Close in designing this product will be rewarded. He says: “In an effort to build more robust portfolios for our clients, an increasing number of IFAs are recommending investments into commercial property funds. This innovative product will hold a diversified portfolio of office, leisure and industrial properties but investors will not be protected by UK legislation. The special attraction is that it will only invest in properties which have fixed or minimum rental uplifts of at least 2.5 per cent a year.”

Childs thinks the returns quoted in the literature of between 10 per cent and 13 per cent a year look extremely attractive in a time of historically low interest rates and low inflation. He explains: “The returns are achieved through a gearing of real property to loans. Not only do investors benefit from the actual capital growth of the portfolio, which should rise as the fixed rental increases take effect, but from the fund&#39s ability to receive higher income than the cost of borrowing. This results in the excess being used to reduce the debt and thereby increase investors&#39 equity from 32 per cent to in excess of 50 per cent, over the investment period.”

According to Childs, there is little to dislike about the product but he feels advisers and their clients need to understand the possible downside of a highly geared property fund which will sell off its property portfolio in six years&#39 time. He says: “Adviser commission is 3.15 per cent of gross funds, including the debt. As each equity investment attracts around 70 per cent of debt, this means that IFAs will get up to 10 per cent commission on the amount invested by their clients. This high amount no doubt reflects the additional research required by IFAs to become familiar with this type of product and with the particular dynamics of property as an asset class.”

Looking at the competition the fund could face, Childs says many IFAs used the Norwich property Fund or the more volatile Aberdeen property share fund which has the advantage of Pep and Isa eligibility, but Childs prefers the Glanmore property fund. He says: “The Glanmore fund has a bottom-up approach, modest gearing and provides a good level of income which is paid gross.”

BROKER RATINGS:

Suitability to market: Good
Investment strategy: Good
Charges: Good
Adviser remuneration: Good
Overall 9/10

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