Commercial property is a good bet
Legal & General bets on property recovery believes UK insurer
Legal & General (L&G), announcing the launch of its
UK Property Income Fund. L&G’s decision is in sharp
contrast to the gloomy days of 2008 and 2009, when many major
insurers imposed stringent limitations on investment withdrawals
from their property funds.
Charlie Walker, senior fund manager
for the new fund, said L&G is in advanced discussions over a
number of assets and a wide variety of vendors. The objective is to
build the fund’s portfolio to £1bn ($1.54bn) over the next two
years.
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According to L&G, subscriptions
secured from a number of European institutions have provided the
new fund with over £175m of equity to deploy. With what the insurer
termed “a strong pipeline of investor interest”, the fund is
targeting a gross asset value of £500m in the first half of
2010.
Prices of target assets for the UK
Property Income Fund’s portfolio range from £50m and £100m in the
office, retail and industrial sectors.
Differentiating the fund is a debt
structure that enables investors to opt for a geared or ungeared
exposure. Net of all costs, L&G is targeting annual returns of
15% geared and 10% ungeared for the fund over a seven-year
term.
L&G’s timing of the funds
launch could prove astute. A study published in April by the Royal
Institution of Chartered Surveyors (RICS) notes there has been a
“substantial rise in London office rent expectations”. RICS added
that this is the first time more surveyors have reported an
anticipated rise in rents for two years.
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By GlobalDataHowever, RICS said the retail
sector “continues to languish” throughout the UK.
L&G’s decision to launch a new property fund follows that of
rival Standard Life, which in November 2009 launched the
Standard Life Investments Property Recovery Fund. Standard
Life’s fund is specifically focused on the recovery potential of
Europe’s commercial property market and is targeting a net
annualised return of 12% over the fund’s five-year life.
