Seneca Property – 10-acre light-industrial tenanted warehouse in the outskirts of Newcastle

This is an exclusive opportunity for Wealth Club members to invest in Nelson Industrial Estate, a substantial multi-let industrial warehousing facility 8 miles north of Newcastle upon Tyne, Northumberland, managed by Seneca Property Limited (“Seneca”). 

It occupies a site of c.10.2 acres and includes 200,000+ sq ft of lettable units. It is currently 94% occupied and generates net rental income of £563k with terms agreed (not signed) on a further unit which would take total annual net rental income to £627k and occupancy to 99%.

One tenant, a major logistics company with £137 million turnover and operating profit of £4.9 million (Dec 2021) rents 70% of the site. A rent increase is due in 2024. Longer term, Seneca expects to complete a restructure with the tenant which would result in them signing up for additional space and a longer term, ideally 10+ years.

Seneca secured this off-market transaction through its close relationship with the seller and is paying £6.55 million for the site, approximately 18% below the market valuation undertaken by BNP Paribas. It has exchanged contracts and has up to four months to complete, although it expects to do so earlier. 

To fund the purchase, Seneca has bank debt of £4.5 million in place and is now seeking up to £2.7 million of investor capital for the balance.

Seneca aims to give investors quarterly distributions of 7% to 10% from interest and capital repayments, as well as the potential for capital growth on exit. The total base-case target return is 1.5x (mid-case is 1.69x) after four years, net of all fees. The offer is a package of ordinary shares (equity) and shareholder loans (debt). Please note returns and timings are not guaranteed: capital is at risk. 

Highlights

• Acquisition price 18% below market valuation
  
• Quarterly cash distributions of 7% to 10% from interest and partial loan repayments
• Potential for significant upside from increased value of property – not guaranteed
• Projected four year base-case return 1.5x – not guaranteed 
• Contracted annual income secured by large logistics company
• Limited supply of industrial space continues to push up local demand
• Opportunity to increase rent – current rent £2.75per sq ft – lower than market average
• Proven and professional property manager with successful track record
• Exit targeted after four years, not guaranteed
• Single commercial property asset with no diversification
• Minimum investment – £25,000, you can start your application online

The offer

Seneca Property 107H Limited (“Seneca 107”) is a newly formed company, incorporated for the sole purpose of facilitating the investment into Nelson Industrial Estate.

It secured the property at a purchase price of £6.55 million (£1.45m lower than the independent valuation) in an off-market deal Seneca originated from its own extensive network.

The transaction and associated costs including Stamp Duty Land Tax are expected to be part-funded by senior bank debt and capital from private investors.

Senior Bank Debt of £4.5 million (equivalent to c.70% of the property purchase price and c.57% of its valuation) is already in place on competitive terms. 

Now Seneca 107 is seeking to raise up to £2.7 million from private investors to cover the balance. Wealth Club investors can exclusively participate in this offer (minimum investment £25,000). 

Please note: you can start your application online. Upon receipt, Seneca will contact you with additional documents to complete. 

The opportunity 

Nelson Industrial Estate, Cramlington is located on the outskirts of Newcastle upon Tyne. The freehold property comprises a series of steel frame buildings: a mixture of warehousing, offices and high-bay storage with secured gated access and car parking. The site has close access to the local road network, including the A19 and A1.

Annual industrial rent growth in Newcastle is running above trend at 10.3% year-over-year and there is high demand from tenants. 

There could be a significant opportunity to increase rent (current rent per square foot is almost half of similar local sites). Occupancy is expected but not guaranteed to increase from the current 94% to 99%, as terms are agreed (not signed) on a tenancy for a further unit.

There is a further 2,000 sq ft of vacant space comprising a detached self-contained unit at the rear of the estate, which Seneca plans to let – not guaranteed. 

Seneca aims to increase annual net rental income from £563k to £700-£800k over the period and renegotiate the longer-term lease. Seneca would look to achieve a profitable sale of the asset in year four – not guaranteed.

The manager

Seneca Partners Ltd, the AIF (Alternative Investment Fund) Manager is a specialist SME investment and advisory business with more than £100 million under management. Formed in 2010 and headquartered in the North West of England, the management team has extensive experience across a range of sectors, including banking, private finance, wealth management, accountancy and stockbroking.

Seneca Property Investments Ltd will be the property manager, responsible for providing advice on relationships with tenants, capital and operational expenditure, as well as other property management issues. 

Seneca Property Investments is led by Jeff Morton who has overall responsibility for managing real estate investments. Jeff is a Chartered Surveyor and has a 30-year corporate history including BlackRock, Merrill Lynch and, most recently, Henley Investments, a private equity and real estate vehicle where he created and managed a large European multi-let portfolio. He is supported by Chris Bullough, a PWC-trained chartered accountant who has spent his career structuring property and private equity deals. Chris previously worked with Jeff at Henley Investments. 

Target returns

This opportunity offers the potential for both income and equity upside: a return of 7 to 10% paid quarterly in arrears and a total base-case projected return of 1.5x over four years. 

So for an investment of £100,000, the total return could be £150,000 – please note neither the income nor the equity upside are guaranteed. Please see the Information Memorandum for downside and upside-case target returns.

These base-case forecasts are predicated on net rental income increasing to £43.76/sq ft and the site being sold at a similar yield to the original purchase. Seneca believes this to be achievable based on local comparable transactions.

Exit strategy

The business plan targets an exit in year four, potentially through a sale trade or a sale to another asset manager. Exit options and timeframes are not guaranteed.

Structure of the investment

Investor capital is expected to be structured as a package of Shareholder Loans and Ordinary Shares. 

Investors' equity will be deployed into the ordinary share capital of the holding company Seneca Property 107H Limited. The Shareholder Loan is made to its wholly owned subsidiary, Seneca Property 107 Limited, which also holds the bank debt. 

The majority of the investment will be structured as a Shareholder Loan which should enable the investor to receive quarterly cash payments of 7 to 10% (a mixture of interest and capital repayments). 

The Company will deduct 20% income tax when paying the interest element and investors should be able to claim a credit for this tax in their tax return. There should be no tax on the capital repayment.

The Ordinary Shareholding should also entitle the investor to 70% of all returns in excess of the Shareholder Loan payments. Seneca Property, the manager, will be entitled to the remaining 30%, once all Shareholder interest and capital have been repaid. Investors are not likely to be able to sell the loan element without the shares, or vice versa.

Please note, income and returns are not guaranteed. 

Fees

There is no direct initial charge or fees payable by investors. However, there are fees that will indirectly impact investor returns. 

As property manager, Seneca Property will receive an initial fee of 2% of the purchase price and Seneca Partners a fundraise and fund management fee of 3% of the investor capital raised. Seneca will pay Wealth Club a fundraising fee of 3% out of this, so there is no additional charge to investors. 

Seneca Property receives ongoing fees of 6% of rental income (subject to a minimum of £15k p.a.) and will charge a sale fee of 1% of the sale price on exit. 

In addition, any profits over and above the repayment of Shareholder loan and outstanding interest will be shared 70/30 between the investors and Seneca respectively. Please see the Information Memorandum for more details on fees and illustrative returns.

Risks – important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. Property investments are high risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments on the Wealth Club website and the Information Memorandum to ensure you fully understand the risks.

This is a single company commercial property offer with no diversification. The business may not be successful; for example, occupancy targets may not be met. Overheads may be greater than forecast and profitability lower.

Commercial property values could fall for any number of reasons. This could reduce returns to investors.

The use of bank debt means there is bank finance risk and risk of increased interest rates will make the loan more expensive. 

The value of tax benefits depends on circumstances and tax rules can change.

Our view

We believe this could be a good investment for experienced investors seeking commercial property exposure. The asset was secured at a 18% discount to market valuation due to Seneca Partners’ extensive network, local reputation and ability to move fast. 

The strong demand for rental space in the area could mitigate the risk of vacancies, although there are no guarantees and you should form your own view.

Register your interest – no obligation

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.