Property is a capital intensive asset requiring critical mass to maximise returns and minimise risk - we estimate that the minimum size of property portfolio to achieve these objectives is some £30 million.
Hence, for the majority of charities, which are unable to run their own segregated portfolios of such size, investment through pooled vehicles is perceived to offer many advantages:
Property Diversification - First and foremost, by pooling their interests the charities can participate in much larger portfolios which provide the required diversification by type and geographical spread;
Asset Diversification - By holding units rather than large, “lumpy” individual buildings charities can reduce their overall exposure to the sector so reducing their overall risk position;
Lot Size - Larger pooled portfolio can acquire larger buildings than charities acting on their own account. This will improve overall performance as large properties out-perform smaller properties;
Management Time - Property investment is a management intensive, specialist field. Investment through pooled schemes reduces this onerous burden for Trustees while enabling access to specialist property investment managers; and
Stamp Duty - Charities are exempt from the 3% Stamp Duty charged levied on all property investments over £0.5 million. By acting collectively, in a special charity vehicle, this will give them a clear performance advantage.
Those few charities of sufficient overall size able to run their own property portfolios can achieve for themselves all the benefits outlined above. For the majority of schemes, however, it is only through a pooled approach that they will achieve the similar rewards of investing in property.