July 31, 2015
Palmer Capital has completed its busiest ever quarter, with £170m of equity committed in the three months to the end of June.
The fund manager, which also operates as a venture capital backer of regional property companies, invested £120m and has another £50m committed across seven deals.
Chief executive Alex Price says at the start of the year he had not expected such a burst of activity. “We thought April, May and June would be quiet, with the general election, but it turned out to be our busiest ever quarter,” he says.
The rush of deals, the largest of which was the acquisition of a retail portfolio in the north of England for about £88m, means Palmer Capital has now deployed about £125m of the equity raised for its latest fund, Palmer Capital Development Fund III (PCDF III), which launched last summer as a joint venture with CBRE GI.
During the quarter, Palmer also completed its first two deals through its Middle Eastern mandate with SEDCO Capital in London and Birmingham, in deals totalling £30m. “There is a huge opportunity from Middle Eastern investors,” says Price. “They take a long-term view and you have to remember they are comparing the UK with their own region.”
Still looking
Even after such a busy quarter, Palmer Capital is still on the lookout for opportunities, with £200m worth of equity to invest in the UK market. It has £50m of equity from PCDF III, which with leverage provides firepower for £100m of acquisitions, and for its low-risk PGVA fund it is looking to raise another £50m for investment in the final quarter of this year and into 2016. Having invested £55m of equity so far this year for its Middle Eastern mandate, which also has core-plus focus, it is looking to get to £100m by the end of the year.
A new fund is also in the offing. Palmer Capital tends to raise a new fund every year so it can be as flexible as possible in adapting its strategy to the market. It is in the early stages of raising a new £100m UK value-add vehicle that will target mixed-use schemes in towns and cities where Palmer Capital can deliver 15% returns.
With PCDF II, Palmer Capital focused on buying land, securing consent and selling it to housebuilders. That worked when housebuilders had weak balance sheets after the crisis, but now they are back to full financial strength, the fund manager is more interested in building sites itself where it can bring to bear its expertise as a commercial developer.
Its focus is acquiring sites in city and town centres, where there is a shortage of housing, and developing mixed-use residential schemes. This is illustrated by its purchase with Angle Property last month of a site in St Albans for PCDF III that is to be redeveloped as a residential scheme by Angle. Palmer Capital will also consider office-led schemes where there is a lack of quality space. “There is demand for fewer offices, but better quality and better located offices,” says director Chris Button.
Other investment themes currently favoured by Palmer Capital include investing in assets with 10 years or more of income where there is an opportunity to add value and the current low cost of debt can ensure good returns. It is also looking for deals where it can work with corporates, along the lines of last year’s acquisition of one of Unilever’s major global research and development bases near Bedford for about £50m. It is working with Unilever to attract occupiers from the science sector, potentially providing collaboration opportunities for the consumer goods giant.
In the second half of the year, Palmer Capital is likely to sell as well as buy. PCDF II is due to expire at the end of 2015, so it will be looking to sell the remaining eight assets in the fund. After a busy few months, there looks to be little respite in store.
Key second quarter deals
£88m
The cost of buying a retail portfolio in northern England
£23m
Second-largest transaction was Hagley Road, Birmingham (pictured above)
£18m
GDV of Hertfordshire House in St Albans, bought for £3.9m
£17m
GDV of three retail units and upper levels in Amersham, bought for £4m