High net worth individuals

The fast-approaching pension reforms which will allow people to draw cash from their pension fund and spend it how they see fit are causing some concerns. Many fear people will take advantage of these new regulations and tax incentives to draw down billions of pounds from poor-performing pensions and then spend that cash unwisely.

Building Plane Deciding how best to invest your pension money can be a minefield, but many will be looking to put that money into property.

Property is performing well and we have seen unprecedented amounts of cash invested in commercial property over the past 12 months because of huge double-digit annual returns. The residential property market is seeing decent growth and that will also be attractive to savers who are being held back by meagre interest rates with no prospect of increase.

However, individual property investment does have one major drawback. It can be very difficult to unlock that cash when you need it the most and, if you don’t have the experience and insights needed for property investment, it can be a lottery.

Alternatively, syndicated property investment can be a sound bet for people looking to invest their pension elsewhere. Not only does it give you access to a wider pool of properties, but the choice of which property to invest in is entirely yours rather than handing control of your investment to a discretionary property manager. Each purchase is thorough researched with all the necessary due diligence being made available for investors to review and form their own opinion. Here I’ve listed five reasons why you should consider investing your pension in a syndicated property fund.

Building Tower 1. Spreading the risk of your pension investment

By joining a syndicate you can invest your money in multiple properties, which helps to spread any potential risk of tenant default which is one of the main risks with any commercial property investment. The minimum investment is £25,000 and that means you can choose to invest your pension cash in a wide variety of different properties. There is no maximum, but typically people invest around £150,000.

As an added bonus, each property is independently managed, valued and the legal title to the property should also be held in the name of an independent Professional Custodian Trustee, ensuring that the property is protected even if the investment manager ceases to exist.

2. You can sell or transfer your share in the property at any time

With individual property investment, your pension money will be tied up in the property until you can sell it. At best, that means a two month wait for your money should you need it. In reality, you will probably have to wait at least a year to sell the property and get your pension fund cash back.

With syndicated property, an investor can sell at any point and the syndicate as a whole can also decide to sell the property with a 75 per cent majority vote.

Typically, in our case, a holding is sold to another syndicate member or another member of Rougemont’s qualifying High Net Worth client base.

Ideally, syndicated property is a five-year investment, but should you wish to sell, a typical syndicate sale takes just three weeks and Rougemont as the operator of each syndicated property is authorised to assist with this role.

3. Average annual returns of 6-7 per cent on your pension money

With interest rates having been anchored at 0.5 per cent for years and the threat of a further cut now on the cards, savers have been heavily punished during the recession. As a result, most are now looking to take control and find the best returns they can for their pension fund.

Syndicated property investment delivers average returns of around 6-7 per cent and Rougemont Estates is delivering better returns than that.

Each investor receives a quarterly income from the property and also benefits from any potential growth in value of the building.

Total returns on commercial property last year hit 19 per cent and, while it’s unlikely to be as high again this year, investors will still be able to expect double-digit returns when factoring in both income and capital growth, providing they invest in the right property.

4. Syndicated property returns are tax free and offer long-term growth for pension savers

Building Around half of all investors in syndicated property are using cash from their pension funds as any income or capital gain from the property into their pension is tax free, which is obviously a real benefit.

A typical investor is 45-years-old and is seeking a secure, long-term income that offers the prospect of medium to long-term capital growth. Depending on their age and profile, we find most investors simply don’t want the hassle of playing the equity market every day or having ownership of a single property where all their ‘eggs are in one basket’ and they have to actively manage the property.

5. Pension investors get expert insight and guidance

Perhaps the biggest benefit of investing your pension money in a syndicated property investment is the knowledge that you are getting expert advice and quality investment prospects.

Rougemont Estates minimises risk in this sort of investment by drawing on their years of knowledge and buys properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion. Rougemont offer the opportunity to it’s High Net Worth audience by way of a detailed investment prospectus. The decision of whether to invest is then up to each investor. Rougemont does not have discretion on any investors funds.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock out there and investors have to be careful.

However, we are confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

By turning to a syndicated property investment company, you can invest in properties in prime locations that benefit from long leases or offer strong prospects for lease renegotiation, rental growth or conversion to an alternative use.

For pension savers, we feel there are some real areas of opportunity within the prime and secondary market where they will be able to benefit from acquiring quality assets that present a real opportunity for growing their cash for the future.

Having sold a stake in his successful property firm Instant Offices, Rob Hamilton, who is also co-founder of rapidly-growing cycling tour business Ride25, turned to Rougemont Estates to find a safe haven for his cash. Here, he shares his thoughts on why he opted for syndicated property investment.

Investors face two burning questions when it comes to finding a haven for their cash. Where can investors get a decent return? And, where will my investment money be safe? It’s a question I faced when I sold a stake in my Instant Offices business two years ago and, already having a solid understanding of the property market, I decided property investment would be the best option.

As a business leader I’m used to taking risks, but I wanted a low-risk option that would provide a safety net for my family but would also deliver decent returns. I know the UK commercial property market can return decent yields but was wary about investing in London where the steep rises are often followed by big dips.

As anyone involved in property in the south will know, the London office market can often prove volatile so I turned to Rougemont Estates to draw on their knowledge of the intricacies of the entire UK commercial property market.

As a specialist commercial property investment company, Rougemont buys high value properties around the UK regions which have secure, sustainable long term commercial tenancies in prime affluent cities and town centres and syndicates the investment to high net worth individuals, with a minimum investment of £25,000. Commonly properties have major national and international corporations or financial institutions on 20 year plus tenancies.

Rougemont typically targets key locations such as Leeds, Sheffield, Manchester, Bristol or York and properties include the HBOS northern regional office in Sheffield and an English Heritage Grade II listed office in York.

It was this expert knowledge and thorough research that attracted my interest. As James Craven has said in this blog, Rougemont works hard to find the “pockets of value” around the UK and also makes sure any investment has great future potential.

These “pockets of value” are attractive properties in their own right, and have the added value of existing good quality long term tenancies, but they also have alternative use prospects in a worst-case scenario.

You can get a better long term return outside of London, but the challenge for someone like me is how to find and buy these properties when you don’t know about locations and what is a good buy.

I think regional investments at the moment are relatively safe with a guaranteed, decent yield. The Rougemont properties yielded 7 per cent per annum, had no debt so your risk is very low and we can sit tight for the long term, selling when it’s right for the market. I like the fact that you aren’t putting money into a fund but can actually pick and choose which assets you invest in. You feel more in control.

My investment philosophy is to be as diverse as possible – not just between equities, funds and properties, but also geographically and by types of property. So far I’ve invested in three properties and I’m still looking for other similar opportunities with Rougemont.

Provided you can invest in properties long term – at least five or ten years – then you can ride out any dips in capital values and minimise your risk. After the recent turmoil in the property and financial sector investors quite rightly are demanding a high degree of security. Rougemont are not afraid of scrutiny.

All of this adds up to a solid investment prospect for me and that’s why I’ve opted for syndicated property investment. If you’ve got any further thoughts or questions about this sort of investment, please share them in the comments below.

After adding £10m of new acquisitions in the first half of 2014, taking the Rougemont Estates portfolio to £40m, managing director James Craven talks about finding “pockets of value” for investors in the syndicated commercial property market.

The commercial property market is once again thriving and we are seeing big increases in occupier demand alongside a renewed appetite and rising confidence among developers. This is also resulting in renewed interest among both domestic and international investors who are looking to cash in on the resurgence of the commercial property market following the pressures of the economic downturn.

For high-net worth individuals looking for solid investments in commercial property this can cause significant challenges, but there are still some pockets of value around the country. As the market has recovered over the past year, we have still been able to find investment properties that continue to deliver income returns way above the norm.

Commercial Property Investment

This year our investments have included a £6.5m whisky maturation warehouse in Edinburgh and a £1.5m property in the heart of York. We’re also currently closing a £6.6m deal for a prime retail unit in St Helier, Jersey.

The whisky warehouse, near to Edinburgh Airport, is backed by drinks giant Diageo on a 15-year lease. The whisky market has grown 80 per cent in the past decade and the warehouse has scheduled increases in rent, delivering an 8.75% per annum return that is paid to investors quarterly.

Stamford House in York is home to the law firm Lupton Fawcett Denison Till. The property delivers a 10 per cent per annum return and has great potential for future growth.

We moved quickly on these deals because of the potential they offer our high-net worth investors and the next deal we’re chasing in Jersey is another deal that will deliver similar returns. We wouldn’t typically consider retail investments as many UK High Streets remain fragile, however, Jersey is an island with one high street, a queue of retailers requiring a presence and a captive market. That all adds up to a solid investment.

Strong income returns

While it’s true there is fierce competition from major institutional funds, we are confident of buying more quality assets for investors and continuing to deliver income returns of up to eight per cent per annum – compared to the one per cent you can usually expect from the mainstream banks.

There’s more confidence back in the market and tenants are beginning to commit to longer leases. We are also seeing a growing appetite among high net wealth individuals for this type of investment.

With this type of investment there is a huge difference between the return on a Government gilt, which is typically 2.5-3 per cent. Commercial property is delivering average returns of around 6-7 per cent and we are doing better than that.

Minimising property investment risk

Risk in this sort of investment is minimised by buying properties in prime locations that offer strong prospects for growth through lease renegotiation or property conversion.

We aim to buy bullet-proof assets. There is still a significant lack of quality stock and you have to be careful, but we are still confident. We look to operate in a niche area, picking up properties that are too expensive for individual investors but that are too small for the big institutional funds.

The big funds are coming in with such an impetus that they are driving up prices by competing amongst themselves. We don’t wish to play on their ‘pitch’ and consequently have been finding value in alternative property assets such as the whisky maturation warehouse and the current Jersey offering.

Confidence in future of property

We are being careful and selective. Syndicated property investment still offers a good, long term, predicted income stream above market level. Interest rates will be slow to recover and we are way ahead of what the banks can offer.

While many are still wary of syndicated commercial property investment, for the right investor, this is a sector that can deliver solid returns and rising confidence in the market means the opportunities are continuing to grow.

We are confident about what lies ahead for commercial property and I’d welcome your thoughts on what you expect to see in the months ahead and whether you think investor confidence will continue to rise.

Unregulated Collective Investment Schemes (“UCIS”) have been dominating the financial headlines over the past two years whilst the Financial Conduct Authority (FCA) has grappled with the lengthy process of ensuring that retail investors do not fall foul of inappropriate advice regarding such schemes.

The result of the FCA’s review is a complete ban on the promotion of UCIS and “close substitute pooled schemes” to the vast majority of retail investors in the U.K. and the introduction of a new regulatory framework governing the operation and promotion of such products.

Under the new regulatory framework, investments such as these can only be promoted to sophisticated or high-net worth investors, or to authorised professional advisers..

Non-Mainstream Pooled Investments

UCIS and close substitute pooled schemes – which are collectively known as Non-Mainstream Pooled Investments (“NMPI’s”) – cover everything from syndicated commercial property and unit trusts set up for tax-exempt investors, to investments in fine wine and forestry / timber; all which are viewed as alternative investments. These types of investment have traditionally been perceived as riskier due to the complex nature of some of their fund structures and the fact that many of the schemes have been highly geared and illiquid in nature; however, that is not the case for every type of UCIS.

The FCA’s review of these types of product has been brought about by a large number of retail investors having lost significant sums of money because they did not fully understand the nature and operation of the schemes in which they were encouraged to invest. In many cases investors had not benefitted from appropriate advice on the suitability of such investments, particularly having regard to their personal circumstances and investment expertise.

However, the FCA has also recognised that some of these schemes do have significant benefits for certain investors, hence the arrangement whereby investors can declare themselves sophisticated investors or high-net worth individuals, thereby enabling them to continue taking advantage of alternative investments.

Alternative Investments

When it launched 5 years ago, Rougemont Estates recognised the importance of being an FCA regulated company and it dedicated significant time and resource to becoming appropriately regulated.
Whilst the new statutory regulations may seem like a major headache to many, they are welcomed by Rougemont as they deliver a long awaited legal obligation on all promoters of such products to provide a uniform high level of transparency in their dealings with investors.

Therefore, there is now a regulatory as well as moral obligation on business operating in this sector to ensure that investors know just exactly what it is they are investing in, what the benefits and risks are of the investment, what return they will receive and when, and what fees the promoter of the product is making from the investment.

Despite these new changes syndicated commercial property investments are still viewed as a riskier alternative asset investment and whilst Rougemont is regulated by the FCA, their actual investment promotions are not; this means that investors may not be protected by either the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS).

However, with an investment in tenanted commercial property investors always retain the value of the land and buildings. Clearly, the main risk is that the tenant becomes insolvent and defaults on its lease obligations; therefore, careful assessment of the tenant’s covenant strength combined with detailed due diligence into the terms of the lease and a rigorous appraisal of the quality of the building itself, its geographical location and its potential for alternative uses are all considered prior to an opportunity being promoted.

Syndicated Commercial Property and liquidity

A major benefit of investing in syndicated commercial property is the freedom for investors to participate in a wide range of well researched, high quality, tenanted properties. Investors can choose to have their commercial property exposure in just one, or a range of diverse property classes and tenants, whilst at all times retaining ownership of their specific pro – rata share of the actual property itself. Syndicated commercial property provides an investor, wanting to invest in commercial property as part of a balanced investment portfolio, the opportunity to do so at levels of financial investment that would not normally deliver exposure to such high quality properties and tenants.

One clear downside with such investments is liquidity and in the case of Rougemont, other than within its client base, there is no established secondary market for the investment. Accordingly, investors have to be prepared to consider such investments as illiquid and be held as a medium to long term investment. However, it is worth noting that when clients have sought to liquidate their investment Rougemont has, to date, never failed to secure a sale of the holding on a client’s behalf. The process is benchmarked against an annual independent valuation and the transaction typically takes two/three weeks.

An alternative to syndicated commercial property is an investment in an established regulated real estate fund, where there is no direct ownership of the asset and all investment and management decisions are made by the fund managers. These investments are viewed as having a much higher degree of liquidity, with investors normally being able to disinvest at will; however, this is not always proven to be the case. In the early stages of the recession, Aviva prohibited investors from exiting their fund while they battled to meet the scale of investor redemptions and seeking to avoid being faced with having to sell off commercial property below their market value to repay investors.

Co-investors

A further benefit of the UCIS promotion rules is the knowledge that your fellow investors will be like-minded individuals. By only promoting to sophisticated or high-net worth investors, you can be reasonably confident that your co-investors will have the necessary experience to participate in making informed commercial decisions regarding the future management of the asset.

Syndicated commercial property investments, promoted and operated by FCA regulated companies, allow investors the freedom to invest in and own their dedicated percentage of a well tenanted quality commercial property, delivering regular quarterly returns with the potential for capital growth.

The FCA recognises this and by now formally establishing a new regulatory framework, advisors and investors can take comfort in the knowledge that every aspect of the business and its promotions are both transparent and ethical.

Unregulated investments are riskier but the rewards can be greater and, most importantly, investors retain control.

London is recognised as the world’s top city for commercial property investment, but we have seen a dramatic swing away from the capital in recent months. High-net worth individuals, major funds and property syndicates seeking alternative investments are now looking to commercial property in the UK regions for solid returns and a high-level of security.

The latest research from commercial property agency Knight Frank shows investment activity in the regional cities soared to a seven-year high in the latter half of 2013 as a wave of institutional money turned its back on London.

This is fuelled by savvy investors who are now looking to get more for their money and more realistic returns.

Investment growth

These UK investors, alongside a swathe of foreign direct investment (FDI), propelled investment turnover to £1.63bn in quarter four of last year – the strongest quarterly total since quarter three of 2007.

But why are investors looking beyond London? Put simply, prices in London have soared because overseas investors have invested heavily in the city as they look for a safe haven away from the recent economic turmoil.

CoStar’s UK Annual Investment Bulletin shows commercial property investment deals reached £52.7bn in 2013, with two-thirds of that money invested in central or Greater London.

That presents significant opportunities for UK investors who know how to make the most of the regions. With investors now looking elsewhere, the weight of money targeting the regional markets has given rise to significant price increases.

Hardening Yields

Knight Frank’s research shows yields from prime stock have hardened by c.50 to 75 base points in the past year. With the rate of yield compression easing, performance will be driven by the recovery in the occupier markets.

Take-up across the regions is growing dramatically once again and that means quality space is running out. For investors, this diminishing space means we should see improved rental growth in the coming months.

It’s a good opportunity and that is why investors are looking to the regions. They are capitalising on falling yields, rising rents and soaring occupier demand.

Direct Foreign Investment

In 2013, the combined effect of a low-interest rate environment, increasing stability in the eurozone, the continuing recovery of the UK economy and the swathes of foreign investment cash meant that demand soared for commercial property investment.

That trend will continue throughout this year. The rising demand among occupiers and the diminishing availability of quality space will ensure that investors both at home and abroad will continue to seek UK opportunities.

Rental Growth

London will remain popular – it’s rumoured that £25bn of funds is currently chasing £1bn of available property in the capital – and that will mean prices will continue to rise for investors and occupiers alike.

But that means the momentum will be in the regions. With occupiers chasing quality space outside London and the trend for “northshoring” growing, this will trigger further rental growth, a rise in occupier demand, speculative development and the number of investment deals will continue to grow in the major regional cities.

This presents significant opportunities and the investors who seek out regional stock with the potential for active asset management will see solid, long-term returns.