We believe there is a compelling investment case for flats in Tower Mint Apartments, in Tower Hill, London.
Four factors underpin the investment case:
- The investment comprises seven flats in Tower Mint Apartments, a central London building. Three of the flats were offered as individual investments, while the remaining four, we are offering as one larger investment, geared at 50% loan-to-value (LTV) of the purchase price. Gearing gives enhanced exposure to property price movements, and the potential for amplified returns; though investors must note amplified negative returns if prices fall. If you’d like to find out more about the effects of gearing, click here for our blog post on geared property
- This was a rare opportunity that played to our strength as buyers with deep market knowledge, and the collective purchasing power that we have with you, our investors. We agreed with the vendor to buy all seven of the flats within this block, and as such were able to negotiate a significant discount compared to the RICS certified Vacant Possession value
- The property is exceptionally well located, just 300m from Tower Bridge and 700m from the iconic ‘Gherkin’ building of London’s financial district. Stations that are within 850m of the property connect the area to the London Underground, Docklands Light Railway and train networks
- The gross rental yield and dividend yield for the property are unusually high for prime central London. This is partly due to the purchase price secured and partly because we have secured a contract with a ‘serviced apartment’ operator to take over the tenancy of the building, which eliminates voids and reduces costs
The property was acquired earlier this year from the same developer that built the block in 2010, and we agreed to purchase all of the flats in this building. As entire blocks usually sell at a discount to the sum-of-the-parts valuation, we were able to negotiate a significant discount on acquisition. This is in comparison to the RICS certified Vacant Possession value of each individual flat. The favourable price for these flats enhances yield and capital growth.
This block of flats is ideally situated near Tower Bridge, and just 15 minutes’ walk from London’s financial district. Several stations are also within walking distance, including Tower Hill, Tower Gateway, Aldgate and London Fenchurch Street. Between them, these stations provide access to the underground network, the Docklands Light Railway and the train network, making the rest of London extremely accessible from Tower Mint Apartments.
A recent Knight Frank survey concludes that 91% of London tenants want to live within 1km of a station. Taking this into account, and the fact that London’s financial district is a significant employment hub – this should continue to be a highly attractive rental property.
The local area is home to several landmarks, including Tower Bridge and the Tower of London, as well as the Royal Mint Building and St. Katherine’s Dock. Whitechapel and Shoreditch are two nearby areas that are currently undergoing dramatic gentrification and the effects have already begun to spread. A case in point – Tower Mint Apartments is situated on the same street as Royal Mint Gardens, a large development of luxury apartments currently under construction, which we expect to have a further positive effect on the prospects for this property.
The estimated yields for Tower Mint Apartments are considered very favourable for prime central London. In their March 2015 analysis of prime central London, Knight Frank’s research team estimate average gross yields at 2.9%, while the gross yield on these flats is 4.6%. This is due, in part, to the favourable price negotiated with the vendor.
We have also secured a contract with a ‘serviced apartment’ operator for tenancy of the whole building. They have contracted to pay the rent on the entire building until the end of July 2017, and we expect to be able to renew this contract, or a similar form, immediately thereafter. This arrangement eliminates ‘void periods’ and also management burden, allowing us to reduce our fee on rental income down to 6% (+VAT). The outcome is a significant increase in the dividend yield.