Property Recovery Funds Fail to Raise Monies
May 6, 2010
2009 certainly was the year for talking big numbers – and then failing to deliver.
No, I’m not talking about the budget deficit but property ‘recovery’ funds. I think branding departments decided that the word ‘recovery’ was the ticket to raising money.
What they did not realise was that people are a lot more savvy.
According to her research, out of the £770 million targetted only 2% was raised. I must admit to thinking last year we kept hearing about these big funds but then never heard about them buying anything.
I think there is a lot of cynicism around about funds. They have significant commission structures, and in many cases performance poorly.
A few years ago at Young Group we spoke with clients about setting up a fund to raise money to buy land to then develop. The feedback we received was people were happy to invest in residential property but prefered to invest in an individual property (through Young Group) rather than put money into a fund. This is one of the reasons we have taken the approach mentioned in a recent blog – Funding new residential developments.
I think a classic example of the issue of funds relates to a recent example when one of the large pension funds sold a commercial building in early 2009 for £21m as the fund valuation had fallen and
therefore to satisfy the terms of the fund had to sell.
However, within about 12 months as the market values have been seen to recover the fund bought back exactly the same property with the same tenants for £31m. A nimble investor made a very healthy profit, however, I suggest private investors who have put in hard earned money have lost out.
I have never been a fan of funds – the only ones I do think are worth looking at are when the fund managers have invested their own money.
There is no substitute to doing research and working with advisors who co-invest.