more positive valad news

From property week...

"Worlds local bank completes fundraising and buys Valad industrial portfolio

HSBC has created a 1bn value-added fund to buy property in the UK and continental Europe.

The banks specialist property fund investment arm, which is run by Paul Mackey, has spent the last two years raising around 400m in equity for the HSBC European Active Real Estate Fund.

Having finally closed at the end of last year, HSBC is preparing to launch the fund next week. It raised the equity from a combination of private investors and private wealth managers, but a significant amount of the money has been put up by HSBC itself at a time when, in the US, new regulations could impact on how banks invest in property.

The fund has a fixed life of seven years, but has been flexibly structured so it can be easily extended, and does not have specific set target returns.

It will use debt on a deal-by-deal basis at a ratio of around 60%.

Mackey, who was formerly a director at Charterhouse Bank, said the fund would seek value-added opportunities particularly industrial property although it would invest in all sectors.

We started raising money last year in a very difficult market and were very pleased with what we achieved, he said. Now the money is there and we are looking to spend it on a discretionary basis.

Matthew Hunt, fund manager at HSBC, said: Investors were extremely comforted by the fact that HSBC has put in equity as well. It shows we are prepared to put our money where our mouth is.

The fund has already quietly invested in three management-intensive deals: it bought a 50% stake in the Expo Market Doraly trade counter and warehouse park in Bucharest, Romania, for 104m; Victoria retail park in Nottingham from Hammerson; and the Parkway Industrial Estate near Heathrow from Aviva Investors over Christmas.

Property Week understands that the fund is close to buying Valads Industrial Investment Partnership for around 50m with Willowbrite, the asset manager that is based in Milton Keynes and run by John Livock.

It is understood to have beaten investors such as Highcross and Dunedin to place under offer the portfolio of 34 high-yielding multi-let light secondary regional industrial estates totalling 2.15m sq ft with a 20% void rate.

None of the parties involved would comment on the deal, but Hunt said: We are taking a very hands-on approach. With the kind of assets we are looking to buy, if you dont effectively manage value, then you will lose value.



Ok what does this actually mean for Valad?

Well to begin with they will lose ongoing management fees for the Industrial Investment Partnership. What are the implications here?
Valad has had the fund since 2004 and its a UK based multi let industrial partnership. It appears that the average lot size is circa 1.5m pounds and the yield on sale is over 11% with the portfolio suffering from a 20% void rate. In the current market this would have been a very difficult and intensive fund to manage, given the large number of small lot sizes and the small business that would be operationg out of these units. So from a purely workload point of view it appears ok. The yield is quite high and I would estimate that the yield on the sale is higher than the going in yield.
As such I am guessing that VPG will not be getting performance fees on that portfolio. This is a guess and there may be some sort of handover fee type provision, which is common.

Assuming the quantum of the fund 50mil pounds, couple that with the intensive management required I might guess that the fees raised are circa 1% of fum (please this is all guess work and if someone knows exactly by all means I am happy to stand corrected.) So it may cut $500k pounds a year from the VPG revenue stream pa in the UK.

Total VPG FM revenue in the 2009 fin statement is just over 86m so the 500k will not be missed too much there. The most important thing out of this for me though is whether VPG owned a proportion of this fund, as is the case with the majority of their funds. I have spent some time looking for the list of investments in funds they manage but I just cant find anything. i have seen it to somewhere.

Base line is its good news and could lead to freeing up a few million pounds if we are lucky.