The UK commercial real estate market has attracted plenty of attention recently, with industry veterans pronouncing the market to be of good value and putting money where their mouths are.
However, prime central London residential real estate is often overlooked by these players and this is where private equity real estate specialist Hudson Global Capital Partners has decided to step in.
Not only is its fund, to be called Open Sky, to provide an opportunity mainly for high net worth individuals to collectively invest in this particular segment of the market, but it also comes with an innovative management structure.
“If we don’t perform to expectations, the investors have the right to fire us,” says J Barnes, chief executive of Hudson. Investors will have shares in the fund that come with voting rights and on an annual basis will have the right to vote on whether or not to retain Hudson as managers.
“It empowers investors and gives them control of their investments,” says Barnes. However, it is not clear whether such management structures will catch on in private equity.
The fund, which is raising £100m in equity, will take a view of up to 10 years and will be able to leverage up to 45%–60% to increase buying power and returns.
“There is a gap between the wholesale and retail prices of prime residential properties in London, which we want to exploit,” says Lord David Poole, chairman of Hudson Capital. “We’re also looking at taking advantage of some mispricing that we’ve seen in the market.”
There have been numerous forced sellers and bulk liquidations of portfolios of prime London residencies recently. Yields are currently around 2.5%–3.5%. The exit strategy will be to sell off properties at some point, or possibly roll the fund into another one.
The main attraction of traditional prime areas of London, such as Chelsea or Knightsbridge, is their rarity value and the fact that they’re part of the global real estate market. They are less affected by UK-specific issues than other parts of the property market. Prices are down about 20% from their peak, according to estate agent Knight Frank, but have been showing signs of recovery since April.
Lord Poole was a business and finance adviser to former UK Prime Minister John Major and has held a number of senior management positions in companies such as Capel-Cure Myers, Grindlay’s Bank and Ockham Holdings.