First Property Group has established a new seven-year term fund with eight institutional investors to invest in office blocks and business parks across England.
The fund, called Fprop Offices, closed its first round of funding last Friday with equity commitments of £182m, including a commitment of £3m by First Property. A second closing with additional equity commitments is expected later this year.Investments by the fund may be leveraged up to a maximum loan to value of 30%, giving the Fund an initial total buying power of £260m.The property fund manager and investor, which has operations in the UK and Central Europe, will not levy management fees for its services but will instead share in the profits earned by the fund.The profit share deal includes 10% of total profits up to an internal rate of return (IRR) of 7.5% a year; 25% of total profits between an IRR of 7.5% and 15% a year; and 20% of total profits above an IRR of 15% a year.The group will receive annual payments on account of the above profit share equivalent to 10% of total profits earned, adjusted, if necessary, each year for any overpayments made in prior years.
Brexit opportunities
First Property has now raised £250m of equity commitments from third parties since the European referendum last summer, in part to take advantage of the slowdown in the UK commercial property market since then. Once fully invested, third party assets under management, which currently amount to £323m, are expected to nearly double in value. Total assets under management, including group properties, are therefore expected to grow from £477m to in excess of £750m.Ben Habib, chief executive of First Property, said: “This new fund represents major progress in the growth of our fund management business, with third party assets under management expected to nearly double. It will also substantially increase our investment in UK commercial property.“The UK’s decision to leave the EU has created opportunities on which we, as a niche fund manager, are well placed to capitalise. Our confidence in the fund’s prospects is also demonstrated by our decision to determine our entire economic benefit from it by reference only to the profits it earns.”