New £10million property fund launched in North East
A £10 million property fund aimed at supporting smaller scale North East construction and property development projects will provide an important boost for the construction industry.
The idea for the fund was conceived by FW Capital, the investment company based in the North of England, who will now manage the North East Property Fund. The fund is backed by Santander and the North East LEP and is held by NPF 2016 Ltd, a special purpose vehicle set up by directors Michael Smith and Geoff Hodgson for this purpose.
The North East Property Fund has been created in response to strong demand from small and medium-sized (SME) construction and property development companies who are unable to access mainstream finance from traditional sources and is hoped it will help kick start development in smaller scale property ventures across the North East.
“Santander is proud to support this new venture which will have a tangible impact on the local North East economy, including significant job creation,” said Stephen Carmichael, Relationship Director, Tyne & Wear CBC, North Division.
“This is a brand new fund concept in the North East combining both public and private money to benefit SME property developers in the region. We were pleased when FW Capital approached us and the North East LEP about the fund idea. It’s a bold and compelling initiative that is confronting head-on the urgent need to deliver more new-build property.”
The fund will provide loans from £250,000 to £1 million for non-speculative residential and commercial developments in Tyne & Wear, Northumberland and County Durham. Typical repayment terms are between 9 and 18 months.
Like other regions in the UK, smaller construction and property development companies have struggled to access finance from traditional lenders, leading to a new-build deficit in residential and commercial properties. This has in turn led to housing shortages in the area.
In terms of the North East itself, an estimated 6,440 homes were built last year vs an annual target of 9,000; only 1,420 of the 3,800 target for affordable homes were built in the region; this shortfall is compounding the legacy deficit year on year.
David Land, the North East LEP Investment Panel Chair said: “The North East Property Fund will tackle a pressing need identified in the region’s Strategic Economic Plan to build more homes which in turn will help drive economic growth.
“Our ambition is for the North East to return to pre-recession housing rates of more than 6,000 new houses a year and this new fund provides smaller construction firms with the confidence to pursue projects to build vital new housing.
“A similar fund in Wales has had a proven impact and demand to access this type of investment in our region is strong.”
The fund is based on the highly successful Wales Property Development Fund that has been operating for almost four years within the Finance Wales Group. FW Capital is part of the Finance Wales Group and they currently manage a number of funds in the North of England.
“At FW Capital we’re able to combine our existing local knowledge with shared expertise regarding property fund management in the wider Finance Wales Group,” explained Fund Manager Joanne Whitfield. “We’ve supported some excellent companies in the North East over the last seven years with a range of growth finance solutions from short-term loans to mezzanine and equity finance.
“We’re looking to expand our offering so that developers here in the North East will benefit from similar success we’ve seen in Wales with the Wales Property Development Fund. We pride ourselves on being a trusted finance partner of small and medium businesses across the North of England and we are delighted to be able to offer this new product to support smaller developers to grow.
The fund will operate on a commercial basis and by reinvesting returns into future projects it has the potential to provide over £30 million of finance into smaller developers over the next five years.
It aims to finance the build of over 300 new homes and finance the development of around 4000 square metres of commercial space. This is forecast to contribute in excess of £25m to the regional economy, creating or safeguarding over 600 local jobs.
Square One Law acted for FW Capital on setting up the Fund, Ward Hadaway acted for Santander and DWF acted for the North East LEP. PwC and UNW provided financial due diligence services to Santander and the North East LEP.
The team at Square One Law has been involved in the creation of over 25 funds. Mark Lazenby, Partner and Head of Finance, said: “The creation of a property fund for the North East is great news. This is the first time a fund like this has been set up in England and it will build on the great work FW Capital has done with the Wales Property Development Fund as well as assisting the North East LEP to deliver its Strategic Economic Plan.
“As the UK prepares to exit the EU , the use of innovative funding structures like this to help recycle public monies and create public/private partnerships will be a good way to help sustain economic growth in the North East.”