Working closely with our longstanding property advisory partner, Riverside Capital, we seek primarily UK commercial property investment opportunities with the right balance of risk and return, and sensible levels of gearing. In most cases, our clients will be the sole provider of the equity funding, although we do, from time to time, invest in syndication with other property investment institutions known to us.
Commercial Property Investment Criteria
Our key objective is to source opportunities to deliver sustainable advantage and targeted returns.
- We focus on assets with a purchase value of between £4m and £10m, requiring £2m to £5m of equity, across a range of sectors, UK wide.
- We take into account an asset's location, sector and income to determine its potential for enhancement/growth and actively asset manage the property to enhance returns.
- We invest in assets with strong tenant covenants and long leases for secure income.
- Where applicable, we strategically gear assets to improve return potential.
- Depending on the particular characteristics of the asset, we aim to deliver investment returns of 10%+, net of all fees, over an investment period of up to 5 years.
- Income: We carefully source assets with the potential to produce fixed income returns over the long term.
- Opportunistic: Where there is potential for significant return/value creation, we take carefully calculated risks that capitalise on distressed situations, or seize the opportunity to restructure/reposition an asset.
- Forward-funding: Where appropriate, we create new investment opportunities by providing funding through the development process and on a forward commitment to purchase basis.
Our investment structure will vary according to the particular circumstances of each investment, although in most cases we utilise Limited Partnerships ("LPs"). The main advantage of this is that LPs are "look through" vehicles which ensure that tax is not paid at both the “corporate” level and at the individual level. It also means that each investor in the LP will pay tax according to their own particular circumstances. Our property investments are often structured such that regular distributions are paid to investors quarterly, half yearly or annually, meaning that, over time, this income effectively "de-risks" the investment by reducing the cost of holding. It also means that the total return on the investment can be made up of both income and capital gain.
In assessing each potential investment opportunity, we combine the investment expertise of our property partners, Riverside Capital and our own investment committee.
Once our Investment Committee has decided to proceed with an investment, and when all terms have been agreed with the vendor (of the property) we distribute our Investment Proposal ("IP") to all Connection Capital clients. This IP is a concise document which describes all aspects of the transaction including the investment terms, the financial structure, the potential risks and the targeted returns, including the exit strategy and likely timescales. Many of our clients will then choose to invest, or not, based on the information and terms presented in the IP. Others will have questions which we are very happy to answer, either in person, by telephone or by email.
Concurrent to this process we commission appropriate third party due diligence as required. The findings and conclusions of this work, together with any significant changes from the original Investment Proposal - example, an improvement in the investment terms - are communicated to investing clients prior to legal completion of the transaction.