A London real estate fund targeting 10%+ pa absolute

A London real estate fund
targeting 10%+ pa absolute
returns, managed directly by
experts who advise institutional
fund groups
Key features
— The Marshall Hutton Real Estate Equity Fund (MHREEF) seeks to generate
returns irrespective of the condition and direction of the market, through
opportunistic acquisition and shrewd asset management of prime commercial
and residential real estate in strategic and proven London locations
— Managers hugely experienced. Used by many large institutional fund groups
because of their on-the-ground knowledge and skill
— Fund offers investors chance to eliminate a tier of asset management to
reduce costs and enhance returns
— Targeted return of 10%+ per annum in each of the first three years, with a
20%+ IRR in years four and five
— Managers looking for investments to be made for a minimum of three years to
a maximum of seven, with an exit by way of flotation or realised via trade sales
About the fund
Property focus
— Invests in diversified portfolio of London real estate
— Commercial and residential property included as this opens up
development opportunities
— Properties in strategic and proven London locations to help ensure
valuations hold up
— Properties purchased at distressed prices or where income and capital
values can be enhanced through skilful asset management to drive value
and yield
Property management team
— London specialists whose clients include: Threadneedle Property
Investment, Legal & General Investment Management, Scottish Widows
Investment Partnership, The Crown Estate, Royal London Asset
Management, La Salle Investment Management, AXA Real Estate
Investment Management and Hermes Real Estate Investment
Management
— Exceptional hands-on knowledge and 20 years’ experience of landlord
and tenant matters, leasing, acquisition, disposal, and project delivery
— Long experience working with London planners, so know of projects that
would benefit from change of use or developments that can win planning
consent and how to shape proposals to earn approval
— Has access to many off-market deals across London and the experience
to negotiate best terms
Return profile
— Forecast return of 10%+ per annum over the first three years and 20%+
IRR in years four and five.
— Can gear to 55% of asset (Fund) value to drive returns higher
— Loans accrued on individual properties, rather than aggregated across
whole portfolio to reduce risk. Managers will not cross-collateralise debt
— Fund returns are asset backed
Fund structure
— Open-ended Luxembourg SICAV SIF
— Offered by Luxembourg Fund Partners, leading fast-growing fund
management business in the Duchy with $350m of assets
— Sterling-denominated fund with euro share class if required by investors
— No inherent legacy real estate issues
Generating absolute returns
Off-market opportunities
— Prices fallen marginally in London since 2008 but increased international
demand has underpinned values – particularly for super-prime. However,
market fractured
— Fund launch timed to exploit the funding gap
— Property investors caught with too much debt in 2008 in sectors with
declining asset values have struggled to renegotiate loans
— Liquidity still not readily available for most private individuals
— Result is a substantial decrease in completion prices paid by local,
respected buyers with cash funds
— This has also led to an expansion of the exclusive off-market sector
— Targeted acquisitions available to the Fund show discounts ranging from
10-30% to fair value
Fund timing exploits a funding gap
As at mid-2011 LTVs for residential development finance still falling
— Bank lending intentions to real
estate decreased to mid-year
2011
— 34% of all real estate lenders
currently not lending
— Debt availability unlikely to
improve while eurozone
issues unresolved
— LTVs fell from 56% to 55%
mid-2010 to mid-2011
— Number of lenders prepared
to offer mezzanine finance fell
from 18% to 12% to mid-2011
Source: De Montfort University
Shrewd asset management
— Properties bought where asset values and yields can be enhanced
through:
—
—
—
—
—
—
—
Change of use
Refurbishment
Development
Equity injection
Lease renegotiation
Hands-on project delivery
Underlying knowledge of asset values and project costs
Case studies
— Examples of how asset values and yields can be enhanced through:
— Change of use: Tenancies bought back on property at King’s Cross with book
value of £2.8m. New planning permission negotiated and leases signed with
restaurant, café and hotel. Eighteen months later net asset value £4.85m
— Refurbishment: Westminster property with a book value of £5.8m acquired
and following a £2m refurbishment let to a bank as its London headquarters
for £568,000 pa. Twenty months later building sold for £10.5m
— Re-gearing: Central London office building of 28,500 sq ft where Marshall
Hutton undertook the rent review. During negotiations changed tack and
ultimately secured a lease extension of 10 years, increasing the NAV to
£19m, for which the building was sold six months after closing. The book
value increased by 46%
Benefits of going direct to
property managers
The direct approach
— Traditional real estate funds engage firms like Marshall Hutton for their
specialist local knowledge and expertise in acquiring, developing and
managing properties
— By launching own fund Marshall Hutton offers investors chance to
eliminate a tier of management
— This enables a more agile response to opportunities, speedier completion
of projects, tighter control and lower costs
— This in turn will lead to better returns
— So confident is the management team in the benefits this will have on
returns that it has set its performance bonus hurdle rate at the high level
of 10% cumulative
Managing risk
Managing risk
— Prudent maximum investment and withdrawal restrictions to protect the
integrity of the Fund and other shareholders’ capital and returns. A
maximum of 5% of the FuM can be withdrawn at any time, subject to 60
days’ prior notice
— Private client cornerstone money invested to ensure stability in accrual
period
— Absolute return philosophy – the Fund is not primarily dependent on the
increase of real estate prices. Through its focus on opportunistic
acquisition and shrewd asset management the Fund seeks to generate
returns irrespective of the condition and direction of the market
Managing risk
— Prudent gearing – 55% max
— Loans accrued on individual properties, rather than aggregated across whole
portfolio – we will not cross collateralise debt
— Local knowledge of underlying values
— Expect to sell developed properties to demonstrate ability to sweat the assets
and release capital for further development acquisitions
— Access to consented residential schemes on discounted terms
— Focus on quality property that has sustained appeal
— Mixed portfolio diversified by type, location, operational status or delivery time
— The Fund will always maintain a minimum liquidity of 10% of the NAV. (It may
exceed this level to enable the funding of targeted assets or when the Board
of Directors reasonably believes no investment available meets MHREEF
investment criteria.)
Forecasts
Funds under management and gross returns
Source: Marshall Hutton/Principia Economica Ltd
Fund Growth
Source: Marshall Hutton/Principia Economica Ltd
The Marshall Hutton directors:
Richard Marshall-Greaves
has over 27 years’ experience
advising clients on the
acquisition and disposal of
property in the south east of
England, principally in central
London. Expertise includes:
leasing disposal of office, retail
and industrial assets;
development appraisal of office,
residential and retail schemes;
and development delivery
Daniel Hutton has more than
24 years’ experience advising
clients on residential and
commercial assets in central
London. He has an extensive
knowledge of property
financing, the London
occupational market and capital
markets in the UK. Daniel is a
native of Berlin and has also
accrued extensive experience
of the German capital and
residential markets since 2005.
He established Marshall Hutton
with Richard in 1993
Anthony Harston has over 30
years’ experience in the
commercial property market. A
Fellow of the Royal Institution of
Chartered Surveyors, he
became a Partner at Strutt and
Parker in 1991 and headed the
firm’s Landlord and Tenant
Division. He joined Marshall
Hutton in 2002. He has
specialist expertise in rent
review, lease renewal and lease
re-gearing for office, retail and
industrial property
Investor information
— MHREEF is a Luxembourg-based specialised investment fund (LFP 1
SICAV SIF SA) reserved for “well-informed” investors
— Investment minimum is EUR 10,000 for those assessed by a credit
institution, investment firm or a management company which certifies the
investor’s ability to understand the risks associated with investing in the
SIF
— The managers are looking for investments to be made for a minimum of
three years to a maximum of seven, with an exit by way of flotation or
realised via trade sales
Contact information
Julien Renaux
Luxembourg Fund Partners S.A.
Richard Marshall-Greaves
Marshall Hutton
2, Boulevard de la Foire L-1528
Luxembourg
14a Eccleston Street
Westminster SW1W 9LT
Email: julien.renaux@lfpartners.lu
Email: rjmg@marshallhutton.co.uk
Telephone: (+44) 020 7730 5082
Web: www.marshallhutton.co.uk
Important notice
This document has been issued and approved by Luxembourg Fund Partners SA, which is authorised and
regulated by the Luxembourg Commission de Surveillance du Secteur Financier. This document is intended for
discussion purposes only and does not create any legally binding obligations on the part of Luxembourg Fund
Partners SA. Without limitation, this document does not constitute an offer, an invitation to offer or a
recommendation to enter into any transaction. When making an investment decision, you should rely solely on the
final documentation relating to the transaction and not the summary contained herein. The transactions and
product mentioned herein may not be appropriate for all investors and before entering into any transaction you
should take steps to ensure that you fully understand the transaction and have made an independent assessment
of the appropriateness of the transaction in light of your own objectives and circumstances, including the possible
risks and benefits of entering into such transaction. We recommend that you seek advice from your own tax and
legal advisers in making this assessment. The information contained in this document is based on material we
believe to be reliable. However, we do not represent that it is accurate, current, complete or error-free.
Assumptions, estimates and opinions contained in this document constitute our judgment as of the date of the
document and are subject to change without notice. The underlying investments in the fund consist wholly or
substantially of real property. The value of the real property concerned will generally be a matter of valuer’s opinion
rather than fact. Under certain market conditions investors seeking to redeem their holdings may experience
significant restrictions or delays. Any projections are based on a number of assumptions as to market conditions,
and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of
future results. The distribution of this document and availability of this product in certain jurisdictions may be
restricted by law. You may not distribute this document, in whole or in part, without our express written permission.