The ICON Real Estate Fund II was founded in 2013. It is a real estate fund in which 80% of the investment objects are development projects and the remaining 20% are cash flow projects. In development projects, we refine the buildings and plots, which increases the value of the investment, whereas traditional cash flow projects generate sustained profit in the form of rental income.
In practice, the development of real estate is similar to what many owners of private housing do with their properties: they buy a dwelling in disrepair, renovate it and resell it. ICON does the same but on a larger scale. This creates synergy benefits, such as lower purchase prices and cheaper contracts. The whole building can be renovated at once, which increases the value of the real estate considerably more than just aesthetic repairs.
The target size of the fund is MEUR 30, and our goal is to double investors’ capital in eight years. The investment period is 10 years.
The fund’s projects include new construction in the Helsinki metropolitan area and Tallinn and commercial buildings in Finland and Estonia. A minimum of 90% of the fund’s real estate projects must be located in Finland and a maximum of 10% in Estonia.
We bought a plot on Satamasaarentie in Helsinki for development, acquired a building permit for a piece of real estate and resold it to a contractor. The return on capital employed was 32%. The project lasted 10 months.
The building in question consisted of old apartments that were used as offices. We changed the articles of association so that the apartments could be used as dwellings again and resold them without renovating. The gross profit can be considered unlimited, because ICON spent no capital of its own on the project. A four month term of payment was agreed upon for the deal, and we resold all the apartments during that time. After the four months, ICON paid the purchase price in accordance with the agreement.
The office and industrial building on Verstaskatu in Turku is a cash flow property that generates sustained profit in the form of rental income. The property has two tenants with a five and three year lease. The rental revenue received for the real estate is 13.68% p.a. The property’s location is excellent: the distance to the bypass is only about 500 metres, to the Mylly shopping centre about 3 kilometres, to the motorway to Tampere 1.5 kilometres and to the airport about 5 kilometres. Its central location makes it a superb investment. The property is located on a 5,000 square metre leasehold site, which is owned by the Town of Turku and whose lease agreement has just been renewed. The property’s total area is 2,676 FA metres.
The real estate is located right in the heart of Helsinki, in the popular Kaartinkaupunki district where all the services you could need can be found within a radius of one kilometre. ICON Real Estate Fund II owns floors 2–5 (approximately 900 m²)* of this six-storey building. Our target is to convert the old office building into 20 apartments, which will be resold after they are finished. The commercial premises in the property suffered some serious fire damage about 12 years ago, after which the building services engineering was renewed in this part of the property. Otherwise the property has mainly had only small and seasonal service repairs done, and the section of the building with offices is almost entirely in its original state. The apartments are due for completion in Q4/2017.
* 2nd floor was sold in July 2016.
ICON Real Estate Fund II owns 25% of a plot in the centre of Tallinn, Estonia, where it intends to build four housing blocks. The blocks will contain more than 100 apartments when ready. The land is currently used as a car park, and the plot has a valid detailed plan. The distance from Nafta to the city centre is 1.8 kilometres and to the harbour 1.4 kilometres. An office building has just been built next to the plot and a new supermarket is on its way, which makes the location of these future multi-storey buildings even more appealing. Some of the apartments will offer a stunning view of the sea. The housing blocks are due for completion in 2017–2018.
This is an office and warehouse building built in 1969 in the Lauttasaari district of Helsinki. ICON Real Estate Fund II owns 17% and ICON Real I owns 50% of it. Our aim is to retain the property’s value and attractiveness for a little while longer, after which the old building will pulled down and a new eight-storey housing block will be built in its place. The new building will have 52 apartments, with 46 parking spaces in the basement. The project is scheduled for completion in 2017.
ICON Real Estate Fund II has acquired a plot in Suurpelto in Espoo, of which it will indirectly own approximately 33%. The plot will have a central quarter where business premises, four housing blocks and an indoor car park will be built. In 2016, we will apply for a alternation of land use plan for the central block. When the land use plan is legally valid we will apply for a building permit for the central quarter, invite contractors to tender and raise funding for the construction. The area will have more than 400 dwellings. The plot has building rights for a total of 25,000 FA metres. The completion of the central quarter is estimated to take place in 2018–2019
The plot has a strong land use plan prepared in the 2000s, which demonstrates how new the area is. The distance from Suurpelto to the centre of Helsinki is 15 kilometres and to the centre of Espoo 8.5 kilometres. The area has excellent transport connections.
Real estate fund investments make both a sustained cash flow (rent) and the appreciation of the investment (development and sale of projects) possible. This is why we created a fund where both these considerations are realised. A new development project is finished in the ICON Real Estate Fund II every year: the profit from Ratakatu will be disbursed to investors in 2017, from Nafta in 2017, from Nahkahousuntie in 2018 and from Suurpelto in 2019.
ICON Real Estate Funds aims to double their investors’ capital in eight years, which translates as 13% average annual profit. The underlying assumption is that the prices of real estate and contracts will remain at their current level. If the property market in Finland should fall by 25%, the calculated yield from ICON Real Estate Fund II will be 0%. In such a case, investors will recover their invested capital.
Fund: Real Estate Fund
Investment objects: Real estate in Finland (90%) and Estonia (10%)
Period: max. 10 years
Currency: Euro (€)
Target size of the fund: MEUR 30
Minimum investment commitment: EUR 100,000 (investment companies / deposit insurance EUR 20,000)
Gross return target: 13% p.a. for invested capital
1,2 % p.a.
Success fee: 22 %
Joining the fund:
An investor joins the fund as a silent partner
Issue organiser: ICON Real Estate Funds Ltd
The risks of investing in ICON Real Estate Fund II are managed by restricting the amount of liabilities in such a way that they amount to no more than 70% of the entire fund and by hedging 50% of them against interest rate risk.
ICON strongly believes that the demand for real estate in growth centres will grow. The aim of the fund is to convert old offices into apartments and build new housing blocks mainly in the Helsinki metropolitan area. To find out more about the risk of the housing market crashing, click here.