The British property opportunities fund will aim for target returns of at least 10 per cent a year by investing mainly in residential property, with a smaller amount in commercial property. This includes distressed portfolios, development opportunities and commercial property wth high rental yields.
Managing Partners believes this is a good time to launch a property fund because negative market sentiment has created discounts to the market value of many properties. It has appointed a specialist property adviser, Horizon, to advise the fund on which properties to buy and sell.
Existing property funds that are fully invested are selling properties to meet redemptions from investors who have seen that returns are going down and who want to get out of the sector. As a new fund, British property opportunities does not have this problem and is able to tale advantages of the forced selling by other funds in acquiring its own property portfolio at a discount.
Managing Partners expects 2008 to be more challenging than previous years but with developers and buy to let investors forced to exit market when liquidity dries up, it is looking for bargains. It also believes it will face less competition for suitable opportunities as many funds are selling rather than buying.
The fund has the scope to look at all types of residential property but will avoid areas that are likely to suffer bigger drop, such as some parts of the North of England, in favour of areas in the South where there is a shortage of homes. These areas also have a growing number of economic migrants from Eastern Europe who tend to live in affluent areas where there are more jobs.
Houses are preferred to apartments because they suffer less reduction in value, but the fund will invest in some apartments – for example, new builds where developers have run out of money, which have been reposed by banks who want to offload them.
Managing Partners assumes there will be less investor interest in property than there has been, but it is confident that market sentiment will change, as property is a cyclical market.
However, its initial advantage over other property funds will not last forever and once fully invested, it will be subject to the same issues of liquidity and redemptions as other funds.