A Few of Our Current Projects

Over the past three years, Craigard has successfully used Druce’s Trust For Sale Syndication structure to make selective, opportunist property acquisitions, using High Net Worth investor cash with bank debt (when available). Co-investment to date has come solely through recommendation and word of mouth. All of this achieved coming out of one of the toughest financial climates in recent times.

Here is an outline of a few current projects which illustrate our mode of operation and the style of project we undertake.

Cornbrash Park, Chippenham

Due to more conservative financial appraisal assumptions adopted as a consequence of Brexit, this modern business park complex was one of only two acquisitions secured during 2019 and is an interesting mixed scheme comprising four office buildings and three warehouse units. The project encompasses all aspects of asset management with lease expiries occurring on the offices and the need for subsequent refurbishment and marketing and reletting, rent reviews and lease events to be concluded on the industrial and office space and potentially a leasehold title re-gearing exercise with the Local Authority.

At the more adventurous end of the spectrum of Craigard’s projects, quite a lot of letting risk has been accepted in the office campus but equally the industrial units are well let and a very good investment. The pricing was attractive partly because of the relatively short long lease of 94 years but also because the vendor, a large institution, chose not to separately sell the industrial and offices and the risks attached to the office part of the scheme therefore have dragged down the value of the industrial. There is therefore some real added value to be achieved here and the attractive pricing allowed a considered risk to be taken on reletting the offices.

Purchase was around £3m, a loan was secured of around £1.5m and total exit proceeds are modelled around £4.5m showing as annual investor IRR of round 13% per annum over the 4-year life of the project. With a fair wind it is hoped to exceed this figure, but much depends on the speed of letting of the office accommodation and this has now of course been impacted by the current pandemic. Prior to that, after the election result, there had been some very promising interest and enquiries in the space.

Bristol Road, Bridgwater

Acquired in October 2018 with the last few months of a lease remaining to Travis Perkins, this was acquired as a complex and exciting refurbishment / redevelopment project. The property comprises 38,500 sq ft on just under 4 acres of land and is in a highly prominent location. The existing building has been sub-divided into six units, has been re-clad and now presents like new. The smaller unit sizes created offer a wider diversity of target occupiers including trade counter users given the main road frontage. A separate 1.75-acre site has been created which is being marketed to owner occupiers or for a pre-let. Once Phase One has been fully let it is possible that investors may proceed with a speculative development on the site.

This scheme was purchased during the Brexit process in anticipation of a resurgence of tenant demand once the political decisions had been made and indeed, during the Boris Bounce there was quite a surge of interest from occupiers. The current pandemic has obviously suppressed demand, but the quality of the product created and its excellent location just a mile of the M5, makes this is an asset that is well positioned to perform extremely well as economic activity recovers.

Total of acquisition cost and refurbishment works is just over £4m. Targeted investor annual IRR over the 4-year timescale of the project is just over 15% per annum.

Imperial House, Kings Park Road, Southampton

Located in an established city centre office area, Imperial House is a modern four storey office building totalling 13,245 sq ft and a secure ground floor car park. The building was bought out of a Receivership. The receivers had cosmetically refurbished the building when a major tenant had vacated but lacked sufficient cash to deal with the more comprehensive work that was needed to the mechanical and electrical installations.

Craigard bought the building with a business plan to conclude all the necessary works at a cost of about £400,000 and indeed, let three of the four vacant floors let within six months of practical completion of the works. Since then we have been impacted by uncertainty caused by Brexit and now the Covid 19 pandemic which has frustrated letting of the final vacant suite. However the project is in a good place and ahead of business plan.

On conclusion of the final letting investors in the syndicate will review whether to hold or sell the investment created. There will be a strong argument to retain it given that the lettings achieved have been done at competitive rents so there are good prospects for future rental growth. Further the building has now been comprehensively refurbished and is in good condition to be retained for the medium term. Bought for £2m with a £1m bank loan, expected exit pricing is about £3.35m showing an investor annual IRR of around 15% over the three year time frame of the project.

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Budlake Road, Marsh Barton Trading Estate, Exeter

Exeter

This building comprises as 24,500 sq ft warehouse on a generous two-acre site on the Marsh Barton Trading Estate. This is the best and most long-established location in Exeter – close to the M5 and also the City Centre.

Acquired for £1.4m and let to SIG on a 10-year lease with a tenant break at year five (but with a penalty of £50,000) this was a Craigard Select acquisition bought for steady income but also with a variety of possible asset management initiatives - negotiating removal of the break or should the tenant vacate it was possible to refurbish or even redevelop the site with a higher density.

Given SIG is one of the country’s leading building materials merchants, the roof of the property is in a shocking condition and negotiations are in hand regarding replacement of the roof in return for a better lease.

Acquired with a 40% LTV loan from Lloyds, targeted annual investor IRR was 11.14% per annum. This was a well-bought opportunity which was acquired after it had failed to sell in a national auction.

 

Swingbridge Industrial Estate, Loughborough

A mid-nineties thirteen-unit industrial estate although a number of properties had been sold to owner-occupiers, so the value element comprised four mostly trade counter units including SIG, Euro cell and Howdens. The fourth unit at the time of acquisition was let to a distressed online retailing company although shortly after purchase a lease surrender was negotiated and a new letting concluded at a better rent.

In addition to the routine asset management of the incoming producing units, which has gone well, ownership of the entire estate has allowed for positive management issues to be addressed such as improvement to car parking, landscaping and general presentation issues of the estate signage. Further rationalisation of the development has been possible, with £110,000 gain secured in selling part of the underutilised estate to an adjoining owner-occupier and further a new food outlet being constructed on the front of the estate for regional operator, Birds Bakery. Neither of these latter two initiatives were encompassed within the original appraisal, so they comprise windfall bonus returns

Acquired for just over £3.5m, a lowly geared loan was secured with Lloyds for £1.25m with the balance being investor equity. The business plan revolved around this being an income producing asset with periodic disposals achieved on a unit by unit basis over a three to four-year period. Modelled investor returns were about 9.5% annual IRR over the 4.5-year lifetime of the project.

Bordage House, St Peter Port, Guernsey - Purchased October 2017

Bordage House, Guernsey

The building comprises 12,207 sq ft of good quality office accommodation with a small boutique retail unit on the ground floor. The price paid was £3.7million, representing a 7.5% initial yield.

The property has been acquired under the Craigard Select model and is multi-let to four tenants including ABN Amro Bank, all on long leases. The weighted average unexpired lease term is over nine years – a very attractive off er given that there are also three-yearly RPI rent reviews.

The building was completely rebuilt behind the original façade in the late 1990’s and the various tenants have invested further money in the last year or two undertaking various improvements and refurbishments.

The quality of the tenants and the long leases combined with the quality of the building represented a very solid offer. The pricing is also very favourable compared to a similar building in say Southampton where the investment yield would be probably around 6% - about 25% more expensive in value terms. All round a good investment for the medium term.

Since purchase, we have added £30,000 or so to the income stream by securing a one year letting of the small ground floor suite. This will be refurbished when the space is vacant again next year.

Watts & Co acted for the seller.

Sherwood Park - Purchased April 2016

This investment comprises two, two-storey detached office buildings constructed on the 1990’s of steel frame construction with pitched roofs comprising 52,161 sq ft.

Fountain House is a single let to the Highways Agency for 10 years, with a break after five years, the tenant took occupation prior to its purchase as were undertaking complete refurbishment of the building.

Waterfront House was multi-let to three tenants, E-on and The Secretary of State have since vacated, dilapidations claims have been successfully instigated as a result of which the suites have been refurbished. There is good interest in the vacant space which is now “Best on the Park”.

The purchase price was £5,050,000. The property was purchased on behalf of a syndicate of investors at a net initial yield of circa 10% with a capital value of £100 per sq ft. Debt was secured with Santander.

The buildings are located on Sherwood Park, a prime out of town office park for Nottingham comprising 600,000 sq ft of office accommodation, providing excellent road links.

The business plan is slightly different to the normal “value add” Craigard syndicates – seen as a longer term “cash cow” due to the limited growth expectations for the asset but a multi-let nature giving a 10% per annum return.

Prism - Purchased September 2016

Prism

Prism was purchased in September 2016, the fi rst acquisition for the portfolio post-Brexit. It adjoins Spectrum – one of Craigard’s other investments.

The purchase price was £3.2million with circa 10% net initial yield at £110 capital value per sq ft.

The property comprises detached brick built office premises constructed in 1991 totalling 29,591 sq ft.

The building is multi-let to six tenants over ground and first floors with one suite of circa 4,500 sq ft vacant on the ground floor.

The current annual rent is £330,799 per annum.

Following the purchase of the property, Craigard undertook immediate refurbishment of the vacant ground floor suite and the common areas to improve the image of the building. The vacant suite now has highly efficient LED lighting and a state-of-the-art heating and cooling system, subsequently reducing a potential tenant’s overall occupational running costs.  Unfortunatley, since purchase two tenants have vacated but the available space has been refurbished and is being marketed aggressivley.

The asset is a medium to long-term hold as it is felt that there is growth in the current rental levels and yield shift once full occupancy is achieved.

Above Bar - Purchased September 2013

11-13 Above Bar

17 Above Bar

The property was acquired at an initial yield of 13.4% due to the fact that the tenant was not a major covenant and had a break in 2016 – which in practice they did not exercise.

The top floor fl at was also derelict which has now been refurbished and re-let along with the first floor on a new 15-year lease. The ground floor lease renewal is due in 2020 and the plan is to hold the asset for income and capital growth until that point.

11-13 Above Bar

Consolidating holdings in this locality and acquired as a separate syndicate, this property is split into two separate retail units constructed in the 1960s. Purchased for £1.9million, the price reflected an initial yield of 11.9%.

Santander vacated their unit on lease expiry in 2019. The space is in the market to be re-let. A very good lease renewal was settled with Yorkshire Building Society who now remain as a solid long term tenant for the next 10 years.

Current rental income is £238,725 pa.

 

Northgate Darlington – Purchased December 2013

An opportunist buy inside two weeks of a property that failed to sell at auction, these three retail units are directly opposite Marks & Spencer's, and were acquired for £1.05 million at a 12.75% initial yield. Tenants are Macdonalds, British Heart Foundation and YMCA on a temporary let.

Lloyds provided £500K of debt, with the remaining balance coming from investors.

In the first couple of months of ownership a deal was agreed to relocate British Heart Foundation at an improved rent on a 10 year lease term. Works were then completed to enhance the appearance of the building.

MacDonalds exercised a break in 2016 and a dilapidations claim has just been concluded. Marketing of the vacant unit has suffered due to a very lack lustre northern retail market. The small kiosk has been let to a local ice cream company.

Negotiations are in hand to acquire land to the rear of the site for residential development which will also include the upper parts of the retail frontage.