Building up Britain

The Carlyle Group and UK developer Skelton Group are teaming up for a real estate JV with a focus on the UK.

Private equity firm The Carlyle Group is teaming up with real estate development and investment firm Skelton Group for a £750 million ($1.3 billion; €1.1 billion) joint venture to acquire and develop real estate in the UK.

Called the Carlyle Skelton Development Group, the vehicle will be funded with £150 million in equity from the two groups and, with leverage, will acquire up to £750 million in assets. The fund will have a multi-sector approach, with a focus on commercial and residential properties.

“It's not a completely new investment strategy,” says Robert Hodges, a managing director in Carlyle's Paris office. “It is a new focus for how we're looking at the UK.”

Duncan Moss formed Skelton Group in 2001. It currently has £120 million in developed properties and has acquired £100 million worth of real estate.

“They have an entrepreneurial, hands-on approach to doing deals,” Hodges says of Skelton. “They bring us lots of great deals and [have] strong deal flow through the UK.”

The firms have already been working on a number of projects that will be part of the venture. Carlyle and Skelton have acquired two London offices: a 58,000 square-foot building in Waterloo that has “hotel potential,” while a 41,000 square-foot building in Hay Hill, Mayfair has “potential for redevelopment,” according to a statement.

The joint venture is developing two retail projects on the Southern coast of England, but no further details were given. The venture currently has a levered value of £225 million.

The CSD joint venture is not Carlyle's first investment in the UK: it has two projects in Central London and one in Cumbernauld, Scotland. The firm closed its first European property fund, Carlyle European Real Estate Partners I, in 2004 on £430 million; its successor fund closed late last year on £760 million.

In Europe, Carlyle focuses on properties in the £20 million to £100 million range. Hodges described the fund's philosophy as “opportunistic” and said it would most likely focus on the office, hotel, retail and residential sectors in the UK.“We look at pretty much everything,” he says. The fund currently holds 350 properties across Germany, France, Italy, Spain, Belgium, Denmark and the UK.

Recently, Carlyle sold Cassina Plaza, a sixbuilding business center in Milan to a fund managed by the European Real Estate Group at JP Morgan Asset Management, part of the international investment baking firm.