Cordea Savills launches £1bn core fund

The real estate investment manager, 60% owned by property services firm Savills, is to target prime assets with secure income streams across the UK.

Cordea Savills has launched an open-ended core property fund aimed at buying offices, retail and industrial assets in the UK.

The Cordea Savills UK Income and Growth Fund has a target size of £1 billion ($1.6 billion; €1.14 billion), the firm said in an announcement today. Through the fund, the firm intends to deliver annual distributions of more than 5 percent in addition to growth capital over the longer term.

The London-based fund manager, which currently manages approximately €2.7 billion of assets across various pooled investment strategies and segregated accounts, said the fund would deploy a maximum leverage of 30 percent of loan-to-value.

The vehicle would target office investments in London, Edinburgh, Glasgow, Leeds, Manchester, Birmingham and Bristol, as well as retail warehousing in “areas of undersupply and large catchments” and industrial properties near motorways.

The fund has already held a final closing with three cornerstone investors, Cordea Savills said, including Aviva Investors, a “leading global multi manager and a European Pension fund”, and is now ready to deploy capital.

Michael Flynn, head of institutional business at Cordea Savills, said: “We are launching this fund in response to investor demand for a low-geared core fund with a transparent structure and no legacy issues.”

“The fund, with its stable income bias, aims to deliver outperformance against the property market over the longer term whilst being risk-averse.”

George Tindley, fund director at Cordea Savills, added: “Despite uncertain prospects in the short term, we believe that UK prime commercial property is fairly priced and will perform well again once the occupational markets return to strength.”

“The capital markets are maintaining their hunt for reliable income producing assets and this is encouraging domestic and international investors back into the UK property investment market boosted by the relative weakness of sterling.”

“We believe the prime end of the market will be sustained by the weight of institutional and private money seeking higher returns secured against strong covenants.  In the second half of 2010 we expect the supply of investment product will increase, providing more opportunities for investors, but at the same time creating upward pressure on yields. In these circumstances, stock selection skills will be more important than ever to deliver performance.”