CLS Holdings Plc, a UK investment company with $1.5 billion in real estate holdings, recently ended a bond sale four days early due to strong demand from potential investors. The company, which currently holds properties in France, Germany, and Sweden, as well the United Kingdom, increased the size of the sale by a full 30 per cent to £65 million ($105 million) after selling 5.5 per cent unsecured bonds to individual investors.
Since banks have become more reluctant to lend money, real estate companies have had to resort to alternative ways to raise money to finance developments and make acquisitions. CLS is not the only company using this strategy; it is the fourth property company which has adopted using the London Stock Exchange’s Order Book for Retail Bonds (ORB) for this purpose in 2012.
According to Richard Tice, CLS Chief Executive Officer, there are no other options available for getting unsecured lending at present.
Workspace Group Plc, which holds 4,000 properties housing small businesses in London and southeast England, is also offering retail bonds. The company has up to £75 million ($121.5 million) in debt securities on ORB. Primary Health Properties Plc recently sold £75 million ($121.5 million) in unsecured seven-year bonds with a 5.375 per cent coupon.
Places for People, a social housing provider, raised £40 million ($64.8 million) at the beginning of 2012 with a 10 year, inflation-indexed bond. The organization successfully raised £140 million ($226.8 million) in another debt sale using the same strategy nine months earlier.
Small investors are attracted to retail bonds due to their relatively high yield in comparison to savings accounts or U.K. government bonds. They are realizing that low interest rates are something they are going to have to live with for some time, and that they will need to change their investment strategy if they are going to succeed in achieving an acceptable rate of return. The open bond market can provide savers with the potential for better rates, but private investors must be aware of the risks involved with this type of investment.
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