Cordea Savills holds final closing of Prime London Residential Development Fund

By Bridging Loan Directory 24th July 2013

Cordea Savills has held the final closing of its Prime London Residential Development Fund.

Following recent acquisitions in Chelsea and South Kensington, the fund has attracted further capital and now has purchasing power in excess of GBP200m.

The fund’s strategy is to enable investors to capitalise on the shortage of both debt and equity in the development market and has a target return of 18 to 20 per cent per annum over a four year life. Whilst the fund is now closed, there remains the opportunity for co-investment partners to participate in joint venture developments in order to achieve greater scale and diversification for investors.

To date, the fund has invested in three schemes with a total gross development value in excess of GBP160m. A co-investment partner has invested alongside the fund in two of the schemes. The developments comprise a former chapel and a former school building located on adjoining sites between the Kings Road and the Fulham Road in Chelsea, as well as a 1950s residential apartment block in Hereford Square, South Kensington.

Heads of terms have also been agreed on two further joint venture development opportunities, including an office-to-residential development in the West End and a new-build development in a prime location within the Royal Borough of Kensington & Chelsea.

Patrick Carr, director of investment, said:

“We are delighted to announce the final closing of the Prime London Residential Development Fund. It is an endorsement of the fund’s compelling investment case and Cordea Savills’ ability to originate, structure and execute deals with high quality development and co-investment partners.”

The fund is set to benefit from favourable market conditions with demand for prime London residential property from overseas investors, especially from Asia, expected to remain strong. In addition, the continued weakness of sterling offers those buying in US dollars or US-dollar pegged currencies a discount on purchasing UK property. Combined with this, new supply levels in prime and super-prime areas are predicted to stay low and prices for prime central London residential property are expected to increase over 25 per cent over the five years to 20171. Furthermore, development finance remains tight and selective with experienced developers turning to alternative funding sources to obtain equity and mezzanine financing.

Brian D’Arcy Clark, head of residential acquisitions at Cordea Savills, said:

“Since the financial crisis, banks have been reluctant to lend on property development, at least on feasible terms, and this has left many developers unable to secure sufficient debt and equity to commence developments. In particular, there has been a shortage of newly-built units in prime London locations despite ever increasing demand. This has created an opportunity to provide the financing that developers need to commence schemes with excellent potential.”