Exit announcement - Ground Rents portfolio
1 April 2015
We are pleased to announce that we have successfully completed the £15m sale of our clients’ investment in a portfolio of residential ground rents acquired in 2010. Each £25,000 invested at that time delivered total proceeds of c.£61,000 equivalent to an IRR of 24% per annum. This far exceeded the base case returns forecast at the time of the investment in 2010. During the five year hold period our clients benefitted from the 7% per annum distributable coupon.
- Investment date: August 2010
- Exit date: March 2015
- Investment size: £3.45m
- Return to investors: c2.4x, c24% IRR
- Property advisers: Riverside Capital
The investment was
managed
jointly
by
Connection
Capital
and
our
property
partners,
Riverside
Capital.
The
portfolio
manager
(and
co-investor)
was
Eyre
&
Johnson
Group. Ground
rents
are
the
regular
annual
payments
paid
by
the
leaseholder
of
a
property
to
the
owner
of
the
freehold.
They
are
viewed
as
relatively
safe
investments
given
that
they
are
backed
by
the
underlying
collateral
of
the
land
and
buildings
through
lease
extensions.
The
leases
tend
to
run
for
a
long
period,
often
hundreds
of
years,
which
can
mean
a
long-term
secure
income
for
investors.
There
are
also
opportunities
for
capital
gains
through
lease
extensions.
The
stability
of
the
income,
plus
the
legally-binding
contracts,
ensures
that
a
portfolio
of
ground
rents
is
able
to
pay
a
regular
income
to
investors
with
little
volatility.
Investors
are
attracted
by
the
uncorrelated
nature
of
the
asset
class
and,
with
rent
reviews
generally
linked
to
RPI,
the
assets
often
provide
investors
with
a
hedge
against
inflation.
In
addition,
ground
rents
are
seen
as
a
low
risk
investment.
Leaseholders
are
legally
obliged
to
pay
their
freeholders
and
if
they
default,
the
freeholders
have
the
right
to
repossess
their
properties.
However,
the
chance
of
this
happening
is
remote:
it
is
extremely
unlikely
that
the
owner
of
a
flat
would
risk
losing
their
property
by
failing
to
pay
the
ground
rent
of
just
a
couple
of
hundred
pounds
a
year.
Connection
Capital
clients’
original
£3.45m
investment,
made
via
an
English
Limited
Partnership
structure,
was
supported
by
£8m
of
bank
debt
provided
by
RBS.
“The
investment
in
a
portfolio
of
residential
ground
rents
is
an
excellent
example
of
the
type
of
opportunity
that
Connection
Capital
is
able
to
present
to
its
clients.
The
investors
in
this
transaction
were
attracted
by
the
uncorrelated
asset-backed
nature
of
the
investment
and
have
been
rewarded
with
a
return
well
in
excess
of
the
original
target.” -
Claire
Madden,
Partner
If
you
are
interested
in
receiving
more
information
about
future
investment
opportunities
and
are
not
yet
a
client
of
Connection
Capital,
please
contact Steve Wilson.