Close Property Investment has introduced the Sovereign Street Leeds fund, a unit trust that invests in a single commercial property.
The fund is aimed at investors looking for capital growth in the region of 12 to 16 per cent over the next six years. It will buy a 130,000 square foot building in the centre of Leeds, which is due to be completed in the summer. This building has been pre-let to British Telecom through an 18-year lease, which ensures that the company must pay the agreed rent even if the building remains empty.
Low interest rates mean the cost of borrowing the money to buy the property will be around 5.75 per cent. This is lower than the initial rental yield of 6.65 per cent and there will be upward-only rent reviews every five years.
Some investors may consider property investments an attractive addition to their portfolio because they are less volatile than stockmarket investments. This fund invests in bricks and mortar rather than property shares, so it is less volatile than funds that invest in property shares. However, bricks and mortar investments are less liquid and investors may need to remain invested in the fund for the full term of six years.
The fund could attract interest from high-net worth investors, self-invested personal pensions and small self-administered schemes looking for diversification. The terms of British Telecom's tenancy of the building is also a plus, but some potential investors could feel that investing in a single property is too risky. They may prefer a fund that invests in a range of properties, like Schroders' West End of London Property unit trust (WELPUT).