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LaSalle plans Ł400 mln British property fund

LaSalle Investment Management is raising a Ł400 million ($632 million) fund to pick up bargain property in a British market where some assets are being sold at 20%-30% discounts to their value, a company executive said on Thursday.

The fund management arm of Jones Lang LaSalle, which has $52.7 billion assets under management, is currently raising a handful of opportunistic funds globally.

Its planned LaSalle UK Ventures Fund II is scheduled to close in the first quarter of next year, and is aiming for 20% internal rates of return, said Paul Richards, LaSalle's head of global managed accounts.

The fund will boost its spending power with borrowing, limited to 75% of total assets, and will look for development opportunities as well as distressed assets.

“In the last two to three months, we've been seeing properties on the market where you think it's good value,” Richards told Reuters in an interview.

“People who've got cash to invest, they should be quite happy at the moment.”

Richards said the volume of commercial property deals in Britain had dropped to a third of the level a year ago, but he expected transactions to pick up at the end of this year or the beginning of next year.

“People have got to clear their balance sheets at the end of the year,” he said. “And two, some of the unlisted funds that had big redemption requests in Q1 and Q2 this year deferred for a year, and now they've got to meet them,” he added.

“So there may be forced sellers.”

Globally, commercial real estate transaction volumes fell 40% in the first half of this year to $233 billion from a year earlier. In North America and Europe, volumes fell 56% and 39%, respectively.

British commercial property values have fallen 24% since June 2007, according to Investment Property Databank (IPD), and Richards expects the London office market to fall further.

The global financial turmoil will cost London 62,000 financial jobs in 2008 and 2009, wiping out the hiring gains of the past decade, data from the Centre for Economics and Business Research showed.

But Richards noted rents were likely to stay fairly steady because office leases in London are of 10 to 15 years, much longer than the 3 to 4 years common in Europe or other developed countries.

“In the last 10 to 20 years, I can't think of any UK opportunity funds at all,” Richards said. “We have a phrase in LaSalle, which a lot of people don't like; dry-powder investing.” (Reuters)