Hypo Property Investment

News

Rachel Frampton

02 December 1999

Hypo Property was set up to take advantage of buying opportunities in the moribund UK property market. With just £200,000 of initial equity, the company started off funding its acquisitions through a combination of standard loan facilities from its parent bank and mezzanine finance arranged by REFS.

Now it funds its acquisitions on more conventional terms, using its own capital and senior debt from Hypo Bank.

Hypo Property has grown rapidly despite laying down exacting requirements. Its acquisition philosophy hinges on long leases, strong covenants which meet Hypo Bank’s own credit department’s criteria, preferably newly-built buildings, but definitely modern ones of high specification. Last but not least, the yield on cost has to be as close to the cost as finance, if not self-financing, as possible.

The company has been involved in a number of high profile schemes in the UK – some managing developments on behalf of its parent bank. The most recent deal has been the £80m sale of Centre West, a 23,225 m2 landmark office and retail scheme in West London to the Disney Corporation, one of the tenants. Hypo Property took control after Hypo Bank bought out other lenders in the nine-strong syndicate in 1993, before the development was completed and occupied.

In Germany, Hypo Bank has a similar subsidiary, Beta Terra, which has bought properties formerly owned by Jurgen Schneider and on which Hypo Bank had secured loans. However, unlike Hypo Properties, Beta Terra does not undertake investment business on its own account, at arm’s length from the bank.

Hypo Property on the other hand has concentrated on this side of its business. It buys high yielding properties – often from developers – adds value by actively managing the properties and sells them on to institutionally-minded investors. Its first acquisition was the Concord Business Park near Manchester which was bought from the developer on a 10.8% yield.

A portfolio of B&Q do-it-yourself warehouses, let on 25-year leases, were bought in 1991 and later sold on to property company Argent at a profit. A retail park in Selly Oak, Birmingham was bought for £9.9m and sold in 1994 at £11.475m. And, Hypo purchased St James’ House in Manchester, widely held to be one of the best office properties in the city and let to accountancy practice KPMG as their North Western HQ. It was bought on a 9% yield and sold last March.

Hypo Property is a wholly-owned subsidiary of HypoBank’s UK operations. The banking side of the business has a UK commercial property loan book of some £1bn which has been built up since 1989. Across Europe, Munich-based Hypo Bank, has a balance sheet amounting to some DM 300bn. Two-thirds of its business is mortgage lending.

Hypo Bank
41 Moorgate
London
EC2R 6AR
Tel: 44 171 638 2728
Fax: 44 171 606 1290

Set up in 1990 as a joint venture with UK property company Ossory Estates and Richard Ellis Financial Services, Hypo Property Investment is now a wholly-owned subsidiary of German mortgage bank Bayerische Hypotheken und Wechsel Bank. Since 1990 Hypo Property has bought £346m of property and sold on £167m. Today its portfolio amounts to £214m which generates £15.1m in annual rental income, showing a yield of some 7%. Hypo Property was set up to take advantage of buying opportunities in the moribund UK property market. With just £200,000 of initial equity, the company started off funding its acquisitions through a combination of standard loan facilities from its parent bank and mezzanine finance arranged by REFS. Now it funds its acquisitions on more conventional terms, using its own capital and senior debt from Hypo Bank. Hypo Property has grown rapidly despite laying down exacting requirements. Its acquisition philosophy hinges on long leases, strong covenants which meet Hypo Bank’s own credit department’s criteria, preferably newly-built buildings, but definitely modern ones of high specification. Last but not least, the yield on cost has to be as close to the cost as finance, if not self-financing, as possible. The company has been involved in a number of high profile schemes in the UK – some managing developments on behalf of its parent bank. The most recent deal has been the £80m sale of Centre West, a 23,225 m2 landmark office and retail scheme in West London to the Disney Corporation, one of the tenants. Hypo Property took control after Hypo Bank bought out other lenders in the nine-strong syndicate in 1993, before the development was completed and occupied. In Germany, Hypo Bank has a similar subsidiary, Beta Terra, which has bought properties formerly owned by Jurgen Schneider and on which Hypo Bank had secured loans. However, unlike Hypo Properties, Beta Terra does not undertake investment business on its own account, at arm’s length from the bank. Hypo Property on the other hand has concentrated on this side of its business. It buys high yielding properties – often from developers – adds value by actively managing the properties and sells them on to institutionally-minded investors. Its first acquisition was the Concord Business Park near Manchester which was bought from the developer on a 10.8% yield. A portfolio of B&Q do-it-yourself warehouses, let on 25-year leases, were bought in 1991 and later sold on to property company Argent at a profit. A retail park in Selly Oak, Birmingham was bought for £9.9m and sold in 1994 at £11.475m. And, Hypo purchased St James’ House in Manchester, widely held to be one of the best office properties in the city and let to accountancy practice KPMG as their North Western HQ. It was bought on a 9% yield and sold last March. Hypo Property is a wholly-owned subsidiary of HypoBank’s UK operations. The banking side of the business has a UK commercial property loan book of some £1bn which has been built up since 1989. Across Europe, Munich-based Hypo Bank, has a balance sheet amounting to some DM 300bn. Two-thirds of its business is mortgage lending. Hypo Bank 41 Moorgate London EC2R 6AR Tel: 44 171 638 2728 Fax: 44 171 606 1290