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New Star set for judgement call on troubled property shares

New Star is to make a major investment in property shares this week, effectively calling the bottom of the market in the struggling asset class.

The move comes after the group sold its largest holding in the £1.5bn UK property fund, the London headquarters of Commerzbank.

New Star sold the property at 60 Gracechurch Street, for some £127.5m to private equity bank Evans Randall, with half the proceeds expected to go in the likes of British Land and Land Securities.

New Star initially purchased the property some 14 months ago for £146m but the group says that the sale exceeded initial expectations with the property being valued at the end of last year at £120m.

Fund manager Roger Dossett believes that with commercial property values nearing the bottom of the market, investing in property shares make better short term sense with values currently some 40 per cent below their underlying asset values.

The offloading of New Star’s largest asset sees liquidity in the fund rise from 18 to 25 per cent. This comes while others have seen their cash flows dwindle leading to a number of notice periods having to be slapped on investors looking to escape the troubled vehicles.

Prior to the crash in property values New Star’s own property vehicle was over £2bn in size, it has since shrunk some 20 per cent.

A spokesmen for the group said that the firm has been seeing a number of buyers, both UK and overseas, coming in to bid for numerous assets in the fund, a strong indication that the market has turned.

“We didn’t have to sell this property but we feel that this selective decision to move into property shares is the right one in the short term before reinvesting in direct commercial property.”

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