Type: Exempt unit trust/limited partnership
Aim: Income and growth by investing in a portfolio of commercial properties in the northern region of the UK
Minimum investment: Lump sum £25,000
Investment split: 60% retail, 40% office, industrial and other sectors
Charges: Initial 0.5% of amount raised, annual 1.5%
Commission: Initial up to 4%, renewal 0.5%
Tel: 020 7493 4933
Property consultant King Sturge Financial Services and property developer Yorvale Capital have created a fund that invests in commercial properties in the northern region of the UK.
Northern UK properties is available as an exempt unit trust for self-invested personal pension and small self-administered scheme investors, or as a limited partnership for direct investments. It will target an average distributable income of 6 per cent a year.
Considering the market suitability of the fund, Capital Trust Financial Management partner Bruce MacFarlane says: “Due to the unregulated nature of this product it is suitable only for the sophisticated investor, which will restrict it as an offering to the high-net-worth end of an IFA’s client bank. The product does however offer leveraged exposure to the commercial property market for those investors that understand the associated risks involved with this type of investment,” he says.
MacFarlane notes that Yorvale Capital has honed its expertise in the north of England and will source the property assets for the funds within this regional focus.
Looking at the product literature, MacFarlane says: “The information memorandum is well put together and clearly lays out the aims, objectives and costs of the investment, allowing potential investors to make an informed decision.”
However, he takes issue with the way in which it presents the track record of the manager. “The track record of the manager cherry picks examples of investment returns achieved during buoyant times in the property cycle, which may be harder to replicate over the next five years in the property cycle. The north of England and the Midlands currently have the highest vacancy rates, and while some towns are showing signs of recovery, many are continuing to deteriorate as the higher proportion of unemployment in these areas impacts on consumer spending.”
MacFarlane feels that the returns for investors in this fund will be geared into an economic recovery in this part of the UK.
Turning to the less appealing features of the fund MacFarlane says: There is little I dislike about this product. If, as the adage says, fortune favours the brave, then good stockpicking by Yorvale Capital, combined with an economic recovery over the next five years could see investors making handsome returns from this type of leveraged play.”
He adds that the fund aims to provide investors with an attractive income target of around 6 per cent a year while they wait for the recovery to come.
“The investment does carry a higher degree of risk than other mainstream unleveraged funds but sophisticated investors will be aware of the potential risks involved. Returns from the fund will be very susceptible to purchase yields and finance costs which have yet to be proved as no property investments have yet been identified by the asset manager,” says MacFarlane.
He observes that yields have tightened considerably over recent months and says the asset manager may have difficulties adhering to the assumptions applied in its financial analysis, which will have a big impact on assumed returns to the investor.
Summing up, MacFarlane says: “This is a unique fund due to its focus on the northern part of England. As a geared investment designed for sophisticated investors, there is little competition at present.”
Suitability to market: Good
Adviser remuneration: Average