Legal & General Property has held a £150 million first close on a core property fund that will let investors select how much debt, if any, they want.
The fund, UK Property Income Fund, is targeting a final close of around £500 million, with a total of £250 million expected to be raised in the first half of this year. The fund is focused on European investors interested in investing in the UK real estate market.
It is believed that enticing investors into the core vehicle by offering the chance to select their individual level of leverage has never been done before in the UK. “I really don’t know anyone else who’s done it,” senior fund manager Charlie Walker told PERE.
The amount of leverage can be anywhere between 0 percent and 50 percent, and Walker stated that in the fund’s first close there exists a mixture of investors who have chosen between fully leveraged, unleveraged and a combination of both.
The fund also hopes to improve the alignment of interest between LPs and GPs by only paying carried interest to the GPs at the end of the fund’s life, compared to deal-by-deal. Carried interest is subject to an annual 15 percent net hurdle rate for leveraged investments and a 10 percent hurdle for unleveraged investments over the fund’s seven-year term.
Walker said the fund expects to buy up to £500 million of real estate in the first half of 2010, with a gross asset value capped at £1 billion. The goal is to build the portfolio to £1 billion during the next two years, according to a company statement.
Legal & General Property will focus on assets valued at between £50 million and £100 million, in the office, retail and industrial sectors. The size of these assets are considered to be an untapped area of the market, said Walker.
Cushman & Wakefield Corporate Finance are acting as the placement agent.