Standard Life Investments has announced that it has commenced marketing for the proposed launch of its Standard Life Investments' UK Property Development Fund and is targeting equity of between approx. €200-275 million (£150-200 million).
The closed-ended fund will be geared 50% loan to cost and will be managed by Standard Life Investments' Head of UK Property Development, Daniel McHugh. Property development activity can provide a significant and positive contribution to property portfolio returns. The Fund has been designed to provide investors with access to commercial property backed alpha returns through a diversified portfolio of development projects and is aimed at UK and Overseas institutional investors.
It is intended that the fund will have one or two seed projects secured for launch and whilst not being constrained to any particular sector or geographic locations, the fund's strategy has a business space focus and will initially target prime town center office schemes, where Standard Life Investments forecast occupational demand will be strongest.
It is anticipated that the fund should achieve an internal rate of return of 20% per annum for investors. Standard Life Investments has aligned its interests with those of investors through a fee structure that is performance orientated.
With a maximum life span of seven years, Standard Life Investments believes that the fund will be fully committed in four years. It is intended to have between five and ten projects - thus ensuring a level of project diversification that will maximise potential returns while limiting specific risk.
Mark Watt, Investment Director in Standard Life Investment's property team, said: "Standard Life Investments has always been one of the most active fund managers in the property development arena. Our approach has been to provide our balanced funds with meaningful exposure to development stock and this new product will, for the first time, enable us to offer this specific exposure to 3rd party investors. Our talented team of Investment and Development Managers have successfully sourced, and are currently in the process of executing, a £700m property development programme.
"Some areas of the UK property investment market now look over-valued, but we continue to find value in development stock, particularly in the locations and sectors where occupational demand indicators are most favourable. Property yields are close to their peak for what has been a quite remarkable cycle and we forecast that all property returns will revert to more modest income and rental growth driven levels for 2007 and beyond. We believe that the timing is therefore right for this type of product, which seeks to deliver property backed alpha to investors which complements and enhances returns from existing property portfolios."
Source: Standard Life