Alternative Asset Class
LCP is the only company to have successfully advised multiple closed ended quoted investment companies targeting the private rented sector in Prime Central London Residential. The latest, London Central Apartments III (LCA III), will offer investors shares in an existing high performing portfolio of around 45 properties in some of the capital’s most desirable postcodes.
In times of uncertainty, Prime Central London residential displays a similar performance to gold, a notable safe-haven when other markets are in turmoil. Whilst past performance may not be repeated, with the UK’s recent vote to leave the European Union, we expect PCL residential to respond in a broadly similar way as it did during the Global Financial Crisis, when the market showed enormous resilience. A flight to quality and the security of blue-chip tangible assets will be underpinned by a weak pound and a widely anticipated cut in interest rates. Moreover, with most equity markets trading well, including the FTSE 100, investors are generally in a much stronger position than in 2009.
Alongside this, the attractions of PCL as a centre of culture, excellence and education and a beacon of democracy with absolute rule of law and unequivocal title to property remain undimmed.
Not only offering an immediate currency advantage, LCA III has significant tax benefits for foreign investors. Whilst the basis of taxation is subject to change, it is exempt from both non-resident CGT and the forthcoming ‘look-through’ inheritance tax.
There are also benefits for UK investors who have previously banked on regional buy-to-lets for budgetary reasons. Unlike PCL, regional property is likely to suffer as a result of Brexit as uncertainty impacts employment, mortgage availability and the feel-good factor which drives price growth outside the core of the capital. Most investors are aware of the resilient returns that can be achieved by PCL in times of global economic turmoil and with a minimum investment of £80,000 (or £25,000 subject to eligibility), LCA III provides a low cost way of gaining exposure.
There are also tax advantages for UK investors. LCA III is eligible for government approved, tax-efficient saving schemes such as SIPPs, SSASs and ISAs, whilst the March Budget offered an 8% reduction in CGT on indirect investments, such as LCA III.
For all shareholders, LCA III is unaffected by the controversial reductions in mortgage interest relief and can capitalise from non-residential rates of Stamp Duty (under 5%) which apply to buildings of 6 or more properties. It is also Sharia compliant.
LCA III is targeting a £100m fund raise which will be invested to expand the existing portfolio, acquiring, renovating, letting and managing a combination of studio, one and two bedroom units to capitalise on the predicted bounce back. It is projecting returns in excess of 10% per annum over a five year period. The minimum subscription is set at £80,000 for direct investors or £25,000 for those investing into the vehicle through regulated entities such as SIPPs, SSAS, ISAs or off-shore pension schemes.
Alongside these significant tax advantages, it benefits from diversification, buying power and professional management.
Following the highly successful exit of LCP’s first fund in 2015, which exceeded target performance criteria, annual results for their second listed property fund, the London Central Residential Recovery Fund (LCRRF), spell out good news for investors. Launched in 2010, when LCP forecast the bottom of the market, the Net Asset Value (as of 31st March 2016 draft accounts) currently stands at 192.64. The value of the underlying portfolio is up 74.6% against initial purchase price.
We believe that the Brexit vote creates an investment opportunity for new investors in LCA III but are obliged to warn you that there is investment risk and a possibility that the value of any investment may go down. Any investment of this nature carries a certain degree of risk, which is briefly set out in the Investment Summary and is detailed in the full Investment Memorandum.
Purchase & Refurbishment Performance To Date
- Average refurbishment and furnishing project 3% under budget
- Average refurbishment project duration – 1 beds: 5.2 weeks
- Average refurbishment project duration – 2 beds: 10.7 weeks
Rental Performance To Date
- The portfolio is achieving 8.46% above the targeted rental yield
- Average time taken to receive rental offer: 7.5 days
- Average time for tenant to move in: 24.9 days