Investment fund raising cash to buy up property

The Longcross Property Investment Fund, which recently made its first acquisition, was launched two months ago by Julian D'Arcy, former chairman of the northern region of property agent Knight Frank, and Michael Hardman, former partner in Yorkshire Bank's structured property finance team.

The pair also set up Ripley Asset Management, which will manage all the assets bought by Longcross.

The team believes that the collapse in values in the property market over the last three years coupled with the lack of finance in the market means that there are opportunities to acquire commercial property at competitive prices.

Fund manager Mr Hardman said: "We think things will get worse (in the economy) but it's all about timing, and we think we have got as close as you can get to the perfect timing. We are looking at all avenues – from so-called distressed properties to off-market opportunities – through our contacts."

Mr D'Arcy added: "You can never precisely judge the bottom, and prices may go down further, but as long as we are not far from the bottom, we can accept it.

"The biggest problem is that we will get a lot of stock coming our way but not all of it is good. We are having to kiss a lot of frogs at the moment but we have got the time to do that to get the good deals."

The fund has raised more than 9m of equity so far from 500 high-net worth individuals investing between 10,000 and 500,000. It aims to raise the rest of the money over the next 12 months.

The initial target size of the fund is 55m, with 30m coming from senior debt, agreed with Santander, Barclays and Nationwide.

Its first acquisition, last month, was for 20 small office buildings in the Home Counties, bought from administrators for 6.6m – which it said was a 45 per cent discount on what they were originally bought for.

Mr Hardman said the buildings were bought for less than 100 per sq ft, having previously been selling for an average of about 200 per sq ft. The majority of units are 70 per cent let and three of the vacant units have subsequently been placed under offer to new tenants.

As part of the deal, all the costs of the vacant areas will be covered by the vendor for 18 months, which Mr Hardman said would enable Ripley Asset Management to offer incentives to new tenants.

It has taken the fund 14 months to raise the initial private equity investment.

Mr Hardman said: "The key to doing something like this is having the money. We have got the money and people know we are in town now if the deal is right for us."

The fund is about to make its second acquisition in the next few weeks with the purchase of an industrial unit in North Yorkshire. It is also looking at further commercial opportunities in central London and in the Home Counties.

It expects a 20 per cent per annum return over the next three years on the commercial acquisitions made so far.

The fund aims to buy a mix of commercial and residential properties and plans to start investing in the residential side next spring.

Mr Hardman said: "We have been nervous of buying residential over the last few months owing to market volatility and the uncertainty created by the proposed public sector cuts but we feel that next year will be the right time to invest."

The pair decided to launch the new venture in 2009. Mr D'Arcy, who was responsible for Knight Frank's residential development activities and the coordination of the firm's urban regeneration consultancy projects across the region, left Knight Frank in May.