Investment fund seeks £100m to put into property

THE managers of a new investment fund which will target real estate in the North of England say they have won support from The Royal Bank of Scotland and Nationwide.

Leeds-based Yorvale Capital LLP is looking for partners to invest 100m in the fund to take advantage of the downturn in the commercial property market. The managers hope to raise 50m in debt and 50m in equity to invest predominantly in the retail sector over the next five years.

Jeremy Binnian, of Yorvale Capital, said that “significant process” has been made on the equity side ahead of March 10 when the fundraising closes.

Mr Binnian said: “There is some very positive interest from all different types – including private clients, corporate pension funds and wealth managers.”

His colleague James Crawford said discussions continue with two banks regarding debt. He added: “We have letters of support from Royal Bank of Scotland and Nationwide. They know us.” Yorvale Capital unveiled plans for the unregulated collective investment fund last year. It is identifying potential investors for partner King Sturge Financial Services, which is promoting and operating the fund. Harrogate-based John Bywater, formerly managing director of Hammerson UK, is chairing the investor committee. Yorvale Capital will manage the assets from Leeds.

Mr Crawford, a former investment director at Town Centre Securities, said: “The simple aim of the fund is to take advantage of the low point in the property cycle.” He said market conditions provide a cash-flow advantage. “We aim to buy income-producing assets greater than the cost of debt.

“For example, if you buy a property with an eight per cent yield, with 50 per cent debt – at a cost of six per cent – and 50 per cent equity, your return on equity will be 10 per cent.

“It’s a point in the cycle where the property yield is greater than the cost of the debt.”

The managers will identify properties costing between 5m and 15m across the North of England, including first tier cities such as Leeds, Manchester, Newcastle, Liverpool and Nottingham, cathedral and university cities like Durham, York and Lincoln and towns including Harrogate, Beverley, Northallerton, Southport and Warrington.

Managers expect the fund to be fully invested by the end of next year, with the acquisition process started by the middle of March.

Matthew Cormack, of Yorvale Capital, added: “What’s come back into favour are very well-let, secure investments which don’t need a lot of thinking about. What we will be doing is identifying properties which need a little bit more thought.

“You cannot expect to just buy anything and just see it go up by 40, 50 or 60 per cent.” It is expected the favourable investment conditions will continue until towards the end of next year, said Mr Binnian.

He added: “There is still a lot of distress in the property market. A lot of banks still have to sort out loans which are breaching loan-to-value covenants.

“There will be quite a bit of property coming out of the banks in the next 18 months. That’s where we think we can score pretty highly.” The partners hope to be able to capitalise on their geographical location.

Mr Crawford said: “There is a big gap in the market in property fund management. They are not really based in this part of the world; they tend to be London-centric. Yorkshire is a wealthy part of the world and Yorkshire people tend to be loyal. They like to do business with their own. If you give all your money to a fund manager in London it is out of sight, out of mind. To us, what’s important is our investor base and being available to our investors and also to our assets.”

The partners will invest a minimum of 300,000 themselves, which will rise to 500,000 if they hit the 100m fundraising target.

King Sturge Financial Services, which is regulated by the Financial Services Authority, said the fund would be low risk, with debt secured on properties, rather than investors.

Director Dominic Reilly said: “It will be acquiring income producing real estate with a view to getting income return and potentially capital gain. It is not going to get involved in any large scale speculative development.”

The return on equity over five years will be 14.25 per cent. Mr Reilly said: “It will be investing in recognised commercial sectors and locations in geographical areas around a 100-mile radius from Leeds. They are going to principally invest in retail.”

Mr Bywater, chairman of the investor committee and an industry veteran, said: “Having seen at least four economic downturns in a long career...I have no doubts about the merits of investing prudently in real estate.

“The management team’s market knowledge and experience in the North is first class.”

Mr Binnian and Mr Cormack jointly control Yorvale, an investment and development company which has properties in Sheffield, Bradford, Altrincham, Castleford, Manchester, Maidstone and Leeds. Mr Crawford added: “This is about a leap of faith in the three of us."