Ex-Climate Change execs to launch £300m UK fund

The managers of Climate Property Fund are said to be planning to raise capital for a follow on UK ‘green’ fund, launching next month.

Tim Mockett and Esme Lowe are thought to be targeting between £200 million (€249.5 million; $332 million) and £300 million of equity for a second vehicle to invest in UK commercial properties which they will work on in partnership with occupiers to improve energy efficiency.

The pair’s first fund attracted £69 million of equity in 2009 and was invested in four UK office buildings. One, 77 Gracechurch Street in London, was sold in July 2011 at a 5.37 percent yield, and two, in Edinburgh and Birmingham, in the last nine months, returning a total £58.2 million, or 85 percent of original equity, so far to the fund’s six investors.

The fourth property, 40 Spring Gardens in Manchester, will be sold when 12,000 square feet of remaining space is let.

“We’re waiting for the right deal, both in terms of commitment to our ideals and level of rent” said Mockett. “There is a slight ‘Harry Hyams – Centre Point’ trend in Manchester now”, Lowe added, referring to the period in the late 1960s when the new Centre Point tower in London was kept empty deliberately as rents rose rapidly.

Climate Property Fund’s investors are Alliance Trust, Insurance Australia Group, Irish fund of funds L&P, Merseyside Pension Fund, Stanhope and Dutch bank SNS, and with strong IRRs and an average 1.3x return on equity on the three sales it is expected that some will want to re-invest.

It is believed that a second fund would have a value-add rather than a core strategy. The likely size will be eight to 12 commercial assets in London and the UK regions, mainly income-producing assets but also retro-conversions to improve sustainability and with a small allocation to pre-let development.

In July Mockett and Lowe moved with Climate Property Fund from Climate Change Capital to Impax Asset Management. Impax has £2.75 billion under management in equity funds investing in resource efficient and environmental markets and wants to diversify into ‘real’ asset classes.

The firm has offices and connections with investors in the US and Hong Kong and via shareholder BNP Paribas, in Australia.

Climate Change Capital, which was bought by agribusiness Bunge, is scaling back on real estate to focus on clean energy and agricultural sectors.

As part of the UK government’s Energy Act 2011, UK landlords will no longer be able to let properties with low energy efficiency ratings from 2018. Ian Simm, chief executive of Impax Asset Management said: “This means fund managers must choose their investments carefully or risk being saddled with properties that they will be unable to let without spending on upgrades”.