The world of prime downtown London apartment buildings in London’s chicest zip codes is typically not haunted by commercial real estate investors, especially those looking for higher returns. It is too difficult to buy on a large scale and too dominated by old money like Grosvenor or Cadogan Estate on the one hand and impulsive oligarchs on the other.
However, one investor has found a way to buy into the market and wants to capitalize on the waves created by the lockdown caused by the pandemic.
One of Leconfield’s owned fairway renovations.
Catalyst Capital is the cornerstone of a new £ 200m fund looking to buy and renovate homes in Belgravia, Chelsea, Kensington, Knightsbridge and Mayfair. The Fairway Capital Property Fund is managed by Fairway Capital and draws on the expertise of Leconfield, a developer and contractor that it owns.
Investment bank Investec has provided the fund with a £ 100 million credit facility, with Catalyst’s European core real estate fund providing around 60% of equity. Fairway said his usual investors are wealthy individuals, but other institutional investors besides Catalyst have shown interest in the fund.
The Fairway Fund will seek to add value by buying older properties and renovating them, which is usually around 10 to 15%, and will typically seek out on London’s garden squares such as Eaton Square and Chester Square in Belgravia or Cadogan place to buy in Knightsbridge.
“We have tried to diversify our fund and looked for opportunities in the UK,” Catalyst partner Kean Hird told Bisnow. “At times like these there is always a flight to quality, and sterling is a safe haven and especially attractive when its value is so low. We were looking for a bit of pizza for the fund, and for that you have to raise the risk curve a bit, but the investment is only about 3% of the total fund size and by retrofitting real estate we think there’s a lot from above. “
Hird said it first considered investing in the fund about a year ago, but the possibility of a Labor government led by Jeremy Corbyn has postponed investing in the UK. When that potential outcome faded with Boris Johnson’s election victory in December, Catalysts interest revived, and then the coronavirus provided an opportune moment.
“There’s a little window to buy in areas like this,” said Hird. “Even in the financial crisis, prices only fell for a few quarters and then recovered.”
Earlier this month, Savills forecast that prime housing values in central London will fall 2% in 2020, before rising 4% in 2021 and 7% in 2022. For the Fairway founder and managing director George Brooksbank, the opportunity that arises from the current disruption arises less through pricing than through the competitive landscape.
Courtesy Fairway Capital
George Brooksbank from Fairway Capital
“It is interesting that January and February were great for fundraising based on the election results, but it was very difficult to buy,” he said. “But since March 17th we have bought nine properties. There was just less competition: people go down and don’t want to invest, or they can’t physically get out and look at real estate. We know these garden spaces so well that we could almost bid without seeing a property. “
Leconfield was the developer behind the renovation and sale of former Prime Minister Margaret Thatcher’s home for £ 30 million in 2016. Brooksbank said its redevelopment strategy isolates it from the typical ups and downs of housing pricing.
“We’re going to buy properties that may need renovation or where a basement could be added. There are currently four such projects going on, ”he said. “We bought two apartments next to each other, which we are combining into a larger apartment on the side. We typically buy at prices around £ 1,500 per SF in areas where values are averaging £ 2,000 per SF and the remediation we have done means they are worth £ 3,000 per SF which is against future price movements safeguards. “
Brooksbank said the problem now is that with the world out of lockdown, it’s getting harder and harder to buy again. In June the fund offered seven properties, but was only able to secure one. But the easing helps prop up pricing, he said, adding that the withdrawal of government support from financial markets over time could mean assets go up for sale.
The fund is based in Jersey and is structured with a put option that guarantees investors their money back when its term ends. It is then up to Fairway to sell all remaining properties.
It’s a road less traveled by established commercial real estate investors, but Catalyst is hoping that, as is often the case, it will be more profitable.