Third European fund rounds off investments by backing new offices venture, writes Jane Robert
Forum Partners’ backing for a new central London serviced office business is the final investment in a 10-company portfolio for the private equity firm’s third European fund.
In this last deal, Forum European Realty Income Fund (FERI III) has invested the majority of the equity alongside Giles Fuchs in Fuchs’ new business, London Serviced Offices, which has just bought an empty City building out of receivership (see below).
The company plans to create a business with four or five assets in the City, Mid Town and West End, says Forum’s European managing director Andrew Walker. “We will acquire assets that are in trouble, buying long leaseholds and freeholds at cheap rates and creating value by converting them to serviced offices.”
It is a typical deal for the 10-year fund, which was closed in 2008 with €443m and typically takes stakes in small or medium-sized property companies, usually as quasi equity via higher-yielding convertible debt.
“We identified different sectors we wanted to be in,” says Walker. Forum struck deals in all but one they’d prioritised; despite two years of searching, it did not find the right deal in the German student housing market.
Around €250m of FERI III’s commitments have been invested, with the rest earmarked for more deals in companies it backs. The typical initial investment is €20m-€30m and the private equity firm participates in its partners’ continued development.
Forum is headed by Russell Platt and also invests in the US and Asia. The senior team that puts together European deals is led by Walker and includes Richard Cotton, who joined from JP Morgan Cazenove’s property corporate advisory business three years ago.
Sectors targeted range from Paris offices to London student housing. As well as backing start-ups like Fuchs the fund has also invested through recapitalisations. In late 2009, Forum bought 40.2% of the preference shares and warrants in Invista European Real Estate Trust’s emergency capital raising, earning a 9% coupon.
In November 2010, Forum underwrote £17m of a £25m convertible loan stock issue for NewRiver, which buys secondary UK food and value retail. Forum is the small REIT’s largest shareholder, with almost 9%. The fund also backed logistics developer Roxhill, set up two years ago by David Kier after he left Goodman; JMS Estates, formed in 2009 by Michael Sherley-Dale; and 18 months ago set up Berlin housing investor Kompass with In-West Immobilien head Darren Ehlert.
FERI III contributed £10m of a £40m Roxhill equity raising this year, after initially committing £24m, and owns 62% of JMS. Sherley-Dale’s firm has raised over £41m to date, with commitments for a further £8m in 2012. It specialises in London student housing and has bought fives sites so far from housing associations and LPA receivers. It has contractual ownership of 150,000 sq ft of property in London’s zones 1 and 2.
Next, in Europe, Forum is said to be raising capital to buy portfolios of distressed property loans. In addition to its mortgage loan servicing expertise through Crown, the firm gained more expertise in debt last year when Robert Weinberg and Ryan Pappas joined as senior managers. They worked for Credit Suisse’s European Real Estate Finance Group and continue to manage the bank’s 49% interest in a European portfolio sold to Apollo.
Forum-backed venture presses bank’s old offices into London Serviced Offices
London Serviced Offices this month paid under £10m to buy 35,000 sq ft County House, at 46 Old Broad Street, EC2, out of LPA receivership as its first property.
The empty City building near Liverpool Street station used to be occupied by Deutsche Bank “and still has their gym in the basement”, says Forum Partners’ Andrew Walker.
The company will spend another £2m of equity fixing it up, says Giles Fuchs, who has over 12 years of experience in serviced offices. He sold his first company in the sector to MWB in 2006 and re-entered the market two years ago.
Another of his companies, in joint venture with Mapeley and Curzon Capital, last year leased three floors of Euston Tower, which are fully occupied. His management firm will run the London Serviced Offices buildings.