Much has been said of late about New York reclaiming its crown from London as the world’s number one destination for commercial property investment. Granted, these two global giants constantly jostle for the top spot, but what is interesting about this is what it means for property investors in the UK.

The eagerly-anticipated annual survey from the Association of Foreign Investors in Real Estate always causes a stir and, despite being released a few weeks ago, the implications are still being debated and it has led to a wealth of further articles arguing that the super-wealthy will also turn their back on the UK capital in favour of The Big Apple.

In truth, London will undoubtedly claim the crown again and these findings are being fuelled by the incredible strength of the property market in the capital over recent months. London has seen massive amounts of investment, most notably from overseas investors, and it has overheated. Prices are high and it has become extremely difficult to secure decent returns. Unsurprisingly, investors are looking elsewhere.

But, what does this mean for investors who still want to put their money in the UK which is seen as a stable safe haven for commercial property funds?

Investors looking beyond London

For most, they are now looking to the UK regions. With development only just firing up again in our regional centres, supply has become limited and that is fuelling rent and yield rises. Overseas investors are already looking at regional opportunities, but the biggest spender in this sector are the UK institutional funds.

Our homegrown funds increased their exposure to regional markets by more than a third last year and when you add in property funds, occupiers and private investors, their total share of the regional market now stands at 60 per cent.

Domestic investors have stolen a march on the UK regions and are reaping the rewards. It’s inevitable that overseas investors will soon follow suit, but there are still some great opportunities in the UK for those who know what to look for.

The ‘Golden Triangle’ for property investors

Another recent piece of research named York, in the heart of Yorkshire, as one of the best cities for investment in the UK. Rougemont has already invested in York, recognising its continuing quality and potential for further growth, and this city is a prime example of what regional investors should be looking for.

York is one of the UK cities that are often referred to as “Little Londons”. Others that fall into this category include Bath, Cambridge, St Albans, Sevenoaks and Oxford and that’s because they all share similar characteristics.

Each city has solid commuter connections, a strong and growing economy and offers excellent quality of life. Estate agents refer to these key ingredients as a “golden triangle” for homebuyers and it’s equally as relevant for commercial property investors.

In Yorkshire, the golden triangle for investors is often referred to as “Betty’s Triangle”. It’s named after the world-famous tea shops and links the affluent tourism hotspots of Harrogate and York with the economic powerhouse of Leeds.

This triangle has extremely solid transport links, London is two-hours by train and it has an international airport, the economy is diverse and growing strongly, and the quality of life is exceptional – quality homes and schools, incredible countryside and rich and varied tourism and leisure are on offer.

Put these together and you have a strong draw for business, and with new business comes new commercial property opportunities.

Investing in properties with potential

There are many examples of these golden triangles around the country and they don’t have to be on a regional scale to offer investors great opportunities. Look for the winning ingredients and, even if it’s a relatively small town, you can be sure to find properties with potential.

We’ve talked at length before about Rougemont’s continuing efforts to find the “pockets of value” when we are hunting for syndicated commercial property investment opportunities and they are still out there.

Critically, investors now have to take more risks if they want to match the returns they have seen over the past five years. Just a year ago, we could buy 10 year leases to quality tenants in grade A located buildings for 7.5%. This is now 6.5% and that means investor expectations have to shift and more confidence has to be placed in the improving occupier market. Long leases are almost none existent and where they are available, the return are not attractive.

Investors now need to look at investments with unexpired short and medium leases but with very good reletting prospects to mitigate the risk of a void income. The downside of this is that the capital value of the property will decrease as the lease length shortens, but if the location and rental level are right, investors stand to benefit from capital growth once a new long lease and rent has been restructured. The income returns applicable to these investments are usually 7.5% – 8% plus.

Ultimately, competition is fierce. The UK funds are moving heavily into the regions and the overseas investors won’t be far behind. However, if you look for the key ingredients and look for properties with potential for growth and/or alternative uses, there are still some great opportunities for investors.

I appreciate many of you will have different ideas and tips on what to look for in property investment and it would be great if you could share them in the comments below. Likewise it would be interesting to gauge appetite for short term income investments but with very good prospects of medium term capital growth.

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.

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.

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

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.

 

In April of this year savers over the age of 55 will be given much greater freedom with the money they have poured into their pension funds for retirement. In a major pension reform unveiled by Chancellor George Osborne, savers will now be able to take a number of smaller lump sums from their pension fund and 25% will be tax free.

The move is all part of a drive by the Government to make people take more responsibility for their future finances and enable savers to seek far better returns than the paltry sums seen in recent years.

Savers have always had the option of taking 25% of their pension in a tax-free lump sum, but were then generally corralled into buying an annuity. However, under the new system, savers can now cash in smaller amounts and then make their own decisions on how best to invest their cash.

But, how should you invest that £50,000 from your pension fund? What will deliver the best return on a lump sum from a pension? What will £50,000 get you in today’s market? And, now you have it, where is your pension fund money safest?

To help you make an informed choice, I’ve provided some examples of what £50,000 in today’s market will get you and what you can expect in return.

1. Use your pension money to buy your dream car

For many, a £50,000 windfall from the pension reform will be an opportunity to snap up the car they’ve always fantasised about owning. Tearing across the countryside with the hood down and gathering admiring glances is always going to be a temptation, but it does come with some drawbacks.

If you’re looking for something new, £50,000 could buy you a sporty Porsche Cayman or Jaguar XF. While they may fulfil your desires and provide reliability, bear in mind many of these cars will be worth £20,000 less in just three years – assuming you don’t put it through a neighbour’s hedge the first time you put your foot down.

Many will say a classic car is a far safer bet and £50,000 opens up a world of possibilities for those demanding vintage style. At the minute, classic cars are soaring in value and could provide an attractive investment option. However, appetites change and you don’t have to look much into the past to see plummeting values in the classics sector. Classic cars also cost considerable amounts to maintain and could prove to be a major drain on day-to-day finances.

2. Spend the pension lump sum on designer fashion or jewellery

Fashion and retail labels constantly provide us with something to aspire to and £50,000 will ensure even the most well-dressed will glance over with envy as you adorn yourself with some of the most desirable items on the planet.

A stroll down any of the world’s most exclusive High Streets and shopping malls will quickly provide a wealth of options for spending a lump sum from your pension with shoes, handbags and jewellery all capable of demanding colossal price tags.

For example, the Leiber Precious Rose handbag features 1,000 diamonds and hundreds of other valuable stones and will cost you a little over £50,000. Similarly, visit a store like Asprey and you could spend £50,000 on a solid silver safe in the shape of a Gorilla.

The one drawback is that if you want to protect your investment, you can’t wear or use any of these exclusive items and nothing falls out of fashion faster than fashion itself.

3. Use the pension reform to fund your hobby

Everyone has a favourite pastime and all of them cost money. In the UK, golf and cycling are among the most popular and both can easily help you to spend your pension fund.

In golf, £50,000 will get you a year’s membership at arguably the best course in the world, the Liberty National in New Jersey, USA, or a set of Honma Golf Five Star clubs – granted you do get a bag and some accessories in that price. Obviously a year’s membership is short-lived and the first duff shot on the tee will soon destroy the value of your clubs, especially when they are subsequently wrapped around a tree or dumped in the lake by the club house.

Cycling can also quickly escalate. The Aston Martin One-77 cycle costs £30,000 and can be accessorised with an exclusive range of Gucci cycling products. A quick and painful trip to the tarmac will again put a serious dint in any future value.

4. Romance…

Follow the example of a young Chinese programmer who spent £50,000 on 99 iPhones on Singles Day in the country and then arranged them in a heart before proposing to his girlfriend. It was a massive romantic gesture, especially considering he earns just £25,000 a year, and she said NO.

While romantic gestures may provide much needed investment for the soul, it rarely provides a monetary return. Opt for some roses and invest the rest of your money elsewhere.

5. Invest your pension fund in syndicated property

Property has long been a safe bet for investors and people taking advantage of smaller lump sums under the new pension reform will undoubtedly consider property as an investment.

Syndicated property is a valuable vehicle for enabling smaller investors to get a stake in larger properties that can offer higher returns, secured against the strength of the tenant and the bricks and mortar. By choosing this option, investors get income from quarterly returns while also seeing the value of the property potentially grow.

There’s more confidence back in the property 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 Rougemont Estates is delivering better returns 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.

Investors, like us, need to look to buy bullet-proof assets. These are properties with quality tenants, solid lease agreements and great future potential.

Syndicated property investment still offers a good, long term, predicted income stream above market level. 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.

If you do decide to invest in property on your own, consider how to manage it, and you could even consider creating your own syndicate with family or friends. With both of these options, feel free to speak to us about how we can provide help or support.

While many are concerned about how people will spend the lump sums from the pension reform, this new legislation will present significant opportunities for investors. While many of the suggestions here are a little tongue-in-cheek, savers who do their research and find investment opportunities that are relatively risk free will see far better returns than their current arrangement.

If you have any further suggestions for investment opportunities, I’d love to hear 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.