News

Property groups to tempt more private investments – 26-27 March 2005 Financial Times by Jim Pickard

Some of the biggest names in the property industry are preparing to launch residential funds aimed at private investors.

They have been encouraged by the Treasury announcement on Budget day that it was likely to introduce tax-transparent vehicles, called real estate investment trusts, as early as next year.

Ministers are keen to give investors tax favourable access to funds that invest in commercial property, homes or both. But with the residential property market on the edge of a slowdown, some experts are asking questions about the timing of the new products.

While most Reits are likely to be in offices and shops in the early days – as a result of most listed companies converting into Reit status – residential Reits could eventually take a growing share of the market. In the US, where the Reit market is worth $300 billion (£160 billion), residential comes second only to shopping centres in market share.

British Land, the listed property group that owns the Broadgate complex near Liverpool Street, has been building a £200 million-plus portfolio of residential property. It intends to turn this into a Reit when ministers introduce the legislation.

Vincent Tchenguiz, the property tycoon, has invested in a £300 million residential property fund set up by two former directors of Colliers CRE, the agents. The fund, Sterling Assets, has ambitions to build up a £1.5 billion portfolio, which would be likely to convert into a Reit.

Similar plans are being put together by Grainger Trust, a listed company which owns thousands of homes with regulated properties.  These are where tenants have guaranteed low rent long leases on properties formerly owned by the likes of ICI and British Coal.

Grainger last week bought City North, a smaller Aim-listed rival specialising in tenanted properties, to build up its portfolio. It is likely to bring in a partner –perhaps a fund manager – to take a stake in the venture, which would convert into a Reit. Other companies are likely to find opportunities in social housing.

Unlike a buy-to-let investment, where an investor borrows tens of thousands of pounds and also takes on letting risk, a Reit would enable investors to buy a small slice in a large, professionally managed pool of property. Potential returns would be smaller but there would be less risk.