Close Brothers always comes up with innovative property investment plans. One I particularly like is Fixed Uplift Properties, which invests in commercial property.
Since the Investment Property Databank started its index of commercial property 32 years ago, commercial property has risen by an average of 12.1 per cent a year.
Unlike property bonds, however, Close Brothers can enhance returns by using low-cost debt because it is now possible to borrow at a fixed rate of interest lower than the level of income from property, thus locking into current low interest rates.
What is particularly attractive about this fund is that it will only acquire properties where growth in the rental income is assured at an average minimum of 2.75 per cent a year. The fund will also only acquire properties let on long leases with more than 15 years remaining.
These measures seek to produce a low-risk fund, especially as the property will be diversified across a range of locations, sectors and tenants.
The prospective returns, assuming a conservative 3 per cent annual rental growth and an exit yield of 7 per cent, will be over 9 per cent a year to investors. If rental growth grows by 4 per cent a year and the exit yield is 6.5 per cent, then the return will be over 13 per cent a year.
The value of the portfolio should rise as the fixed rental increases take effect while active management may produce rewards in the form of extra income or capital growth. These benefits should be a bonus on top of whatever market appreciation takes place.
There is, of course, some risk in the unlikely event of properties of this type falling in value, in which case there could be a loss. It is a six-year capital growth investment, after which time the properties will be sold.