Geared property funds start to feel the crunch

I wonder if this has happened already in Ireland? I wonder if we will read about it in the press if it does?

ft.com/cms/s/0/53f3e078-2d17 … 07658.html

The owners of the fund are getting new shareholders who get to buy in at a discount and will dilute holdings of the current shareholders.

I would love to know about details of some of the debt covnenant on many of the deals done in Ireland over the last couple of years. With commercial property valuations now dropping in prime real estate (as reported last week) covenenants might start getting tested here.

So is this basically a rights issue? You have to fully subscribe to keep your share of the profits the same? I don’t think they’re taking new shareholders.

60% loan-to-value certainly doesn’t seem like huge gearing for the sector.

Norwich Union is part of Aviva, the parent of Hibernian. I think I have seen some Hibernian pamphlets offering Morley funds.

We’ll read about it in the press long after it has happened, and RTE might even pick it up after that.

They are similar meaning that oF COURSE it has happened in Ireland . However these things are not discussed openly as it hinders the ongoing flow of suckers propping the pyramid up at bottom.

Irish funds invested in the UK have taken a massive currency hit in the past year. If they were fully invested on 1 June 2007 the exchange rate was 67p to the € , now its 80p to the € or about 20% down .

And thats assuming static values, if the value in UK£ has dropped that must be compounded on top of the 20% currency hit.

As many funds were raised in Euros to invest in the UK , particularly in the 2004-2007 timeframe , they are well underwater by now.

But shhhhhh Geckko , shhhhhhhh !!

Lets say €70m raised or £50m net of costs etc

Add say £250m of debt. Buy property for £300m. Rent rol of say 5%. Assume interest rate fixed at 6%.

Income vs debt costs is breakeven.

Today underlying property could easily be worth only £250m. Funds are most likely 100% eliminated at present. Will not show up until property is valued next December 31 and accountants report released following April. So 10 months for property market to recover.

If you look at major quoted property groups in UK they have halved in past 15 months and underlying NAVs are well down.

Thats the glory of leverage.

The real glory is the 2% promoter fee every year even though their investors have ‘lost’ everything at that point .

Yeah thats one of the things I hate about funds. “Let me get this straight - I have less money now than when I began and you expect to get paid? Why do you think you deserve it?”.

Now on active funds you could make the argument that they did some work and it just didn’t work out very well. But charging me percentages for passively-managed funds has always strucky me as being pretty rich. Surely a flat rate would be more appropriate since all they do is pretty much buy some shares and hope they go up.

Looks like we all put some money in this baby

The NPRF is the ultimate quango…

The power those guys have is enormous. They probably have control over more money than most government departments.

The fund was down 10.5% in Q1 '08.

Heads will roll very soon methinks.

thepropertypin.com/viewtopic … highlight=

We on the PIN were flagging the dangers of geared property funds a year ago when things were supposedly rosey.
Now you have to give 6 months notice to exit most property funds, (to protect other Investors, of course).