Shore Capital sees property opportunity

The UK investment bank has teamed up with Dawney, Day to raise a £100m leveraged commercial property investment fund.

Shore Capital, the UK investment bank and private equity fund manager, has begun marketing a commercial property investment fund alongside Dawnay, Day Properties, the real estate investor.

Shore, which is headed by its founder Howard Shore, is hoping to raise up to £100m from institutional investors who are looking to generate investment returns by redressing their asset allocation in favour of real estate. Seed investments in the fund have been made by its founders.

The fund, which is called the Puma Property (DD) Fund and is understood to have received several “soft” commitments from institutional investors, is looking to use as much as 80 per leverage to bolster returns. The fund is structured as a limited partnership and expected to have a lifetime of seven years. 

Commenting on the project Howard Shore said the idea of a leveraged real estate fund had been conceived following the events of September 11 as an effort to generate value given current market conditions. “We sat back and asked ourselves where to go from here given the uncertain outlook for equities and the fact that bonds had already had a good move.”

“Property looked attractive, but buying real estate shares has its drawbacks: listed capital typically isn’t see-through so the money isn’t in hand, it often trades at a discount to net asset value and, for reasons I’ve never fully understood, it is restricted to leverage by more than one for one. The whole opportunity is in leveraging by one for four. It really is an arbitrage opportunity, hence the limited partnership structure.” 

Shore added he’d chosen to work with Dawnay, Day because of its “superb” track record as a property investor with an active management approach. Dawney, Day has a portfolio of equity with a gross value of equity of £350m that has achieved a compound rate of return of 50.7 per cent over the 15 years to December 31, 2000.

Puma Property will be looking to invest in assets capable of generating stable income streams and strong fundamentals including location, occupier appeal, quality of building and potential for capital growth.

Puma Property has set up an investment committee which is chaired by Cyril Metliss, a director of British Land.  Other committee members are Howard Shaw, Dawsay’s CEO Peter Klimt, Guy Naggar, who is Dawnay’s chairman, and Peter Sable, a South African private investor with experience in property. 

Shore Capital was set up in 1985 and listed in 2000 following the acquisition of JellyWorks, the AIM listed investment firm. The bank has a strategic partnership with the Bank Leumi Group, the Israeli bank, which holds approximately 20 per cent of Shore Capital.

Shore Capital has been active in private equity investing since 1996, managing development capital funds Puma I and II.