INVESTMENT BULLETIN2010

Welcome to our first Investment Bulletin. It is written for sophisticated and informedprivate investors. We have tried to write the sort of bulletin that we would like to

read if we were thinking of investing in a market in which we were knowledgeable but notexpert. We hope it is useful, interesting and informative.

Interpreting the masses of property market research that comes from surveyors,economists and analysts is not for the faint-hearted. Everyone has a view about propertyand too many people think they understand it. The reality is unlike most investmentmarkets, there is no single property market. There is no market place like the LondonStock Exchange to conduct a trade. There is no source for market pricing. Up to date andtherefore the most useful market information is nearly always passed on verbally ratherthan read in a report. You need to be in the market to properly understand it.

At COBA, we study the available research but relate to what we see, hear and feel fromactually being in the market. There is no point in reproducing the statistical information thatis widely available, we have chosen to focus on what it means and what we believe to behappening.

Unusually, we invest in commercial property and residential property. Whilst the principlesof sound investing are common, they are very different markets, with different drivers andcharacteristics. This Bulletin inevitably takes a broad brush approach. We hope that byreading it, you will be sufficiently interested and that you will want to learn more about whatwe do, where we see the opportunities and how we can help. Our contact details can befound at the back of this Bulletin.

COBAASSET MANAGEMENT

The commercial property market hascooled down and 2011 is likely to be ayear when prices stay flat or even fall. Wesee this as an opportunity to investselectively for the medium to long term.Whilst the world is still a hugely uncertainplace, the fears of cataclysmic failurehave eased and the downside risks aretherefore much lower than two years ago.

The UK residential market will become atwo tier market if it has not alreadybecome one. Properties which are inlimited supply for example those near a

good school, new lateral apartments inKnightsbridge, Georgian rectories inOxfordshire will continue to be soughtafter. Ordinary properties will languish,but probably not fall significantly in value.Flawed properties will simply not sell � butthis has always been the case except in araging bull market.

London Property

Contents2 Investment Review

4 Coba Commentary

6 Article tbc

7 Market Gossip

8 Anatomy of a Property Investment

9 Contact Details

When it comes to propertywho is right, private investorsor institutional investors?

Featured Article■

For the Institutional investor, commercialproperty lies outside the main asset classes of

equity and bonds and is defined as an ‘alternativeinvestment’. Having said this the last 10 yearshave seen a structural change in the constructionof institutional investment portfolios and propertyhas ‘come of age’ as a natural part of a balancedportfolio. Institutional investors now seecommercial property in a similar light to otherasset classes and are looking for consistentpredictable returns over the medium term. Whileshort term gains are always welcomed they arenot the focus of most institutional investmentstrategies.

Conversely, the private investor loves residentialproperty which has consistently out performedthe returns of all other mainstream asset classes.The private investor tends to see commercialproperty in a number of different ways. It can bea very long term hold to protect capital for ageneration or more, a source of “cash on cash”income or potentially a higher risk one offwindfall gain created by investing in a ‘gooddeal’ rather than part of an overall balancedportfolio.

T he most compelling reason for the change inattitude for institutional investors has been

the performance of the sector, compared with theother Asset classes.

As demonstrated by the graph below the sectorhas matched or outperformed equities over thelast 10 years and not withstanding the dramaticfalls in value in 2008 and 2009.

T here remains an implicit confidence in property

because of the relatively high level of income and

the stability of returns based on real assets. Academic

research has shown that holding property in a

balanced portfolio lowers risk without reducing

returns. Private investors are less likely to be driven by

asset allocation strategies or rigorous analysis of

historical data. They are more likely to be influenced

by whether a property appears to be good value and

factors such as the appearance of the property, its

location and their familiarity with the tenant if it is a

commercial property. This does not mean they are

less professional, it means that the investment

process is different. Private investors do not have to

justify their decisions to other people as it is their own

money whereas as institutions are custodians of other

people’s money. This is a profound difference.

It’s my money

HAVE I GOT A GOOD DEAL FOR YOU

COBAASSET MANAGEMENT

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I don’t carewhether or notit’s a bargain!

Featured Article ■

The institutional approach of seekingconsistency has driven institutional investors

further and further towards a perceived ‘norm’with assets selected for their ability to perform inline with expectations rather than for the out andout ‘win’. The result has been an increasing drivetowards the middle of the road ‘core’ investmentwhich is subject to lower volatility and thereforelower risk. Institutional investors have recentlyfavoured ‘safe as houses’ properties such as welllet offices, supermarkets and warehouses, let onlong leases.

Paradoxically there has been very littleinvestment by the institutions in residentialproperty. Not for them the tight rope walk ofdevelopment, empty buildings or up and coming

locations – they would rather forgo the potentialfor super profits and stay in their traditionalcomfort zone.

Private investors are much more prepared toback their own judgment or the judgment of theiradvisors and “take a view”. Few if any areinterested in performing in line with the market.The starting point for most private investors is tounderstand whether they may lose money.Once the downside risk is understood mostprivate investors will take a view on the potentialupside and decide whether they feel comfortablewith the risk and the potential reward. Privateinvestors would generally rather buy a propertywhere there is some potential to add value thansimply rely on the performance of the market.

For institutions the exposure of the portfolio toproperty is part of an overall asset allocation

strategy. There are times to increase exposure andtimes to decrease exposure. Therefore the time tobuy and sell property is influenced as much by thelikely future performance of the market as thecurrent performance of the market. As property isan illiquid asset it takes time to adjust weightingsand this can mean that institutions can miss thebest times to buy and to sell.

Private investors tend to see a specific property asa long term hold or a short term deal. They areoften driven to sell by the profit they have made. Ifthey own an asset that is not part of a longer termstrategy – such as creating cross generationalwealth – they will be prepared to sell it for a price

they feel to be attractive. If they do not receive thatprice they will then continue to own theproperty. Many subscribe to the views of WarrenBuffet, that youshould not buy anasset unless youare happy to ownit for at least tenyears.

Help, I’m overweight in property!

COBAASSET MANAGEMENT

MARKET VIEWS&NEWSCommercialThe prime market has seen unprecedented growth in capital values for the

first part of the year. Demand is strongest for income producing prime,long-leased investments, particularly in London’s City and West End marketswhere overseas buyers are taking advantage of the low value of sterling. But supply of prime investments has been drying up, and the volumes oftransactions are low.

The focus is now on secondary property, but investors are not attracted by therisk of shorter leases and banks are very reluctant to lend on anything but thebest quality. So yields remain high and there is talk of a double dip at least in the secondary market, however in our view this is not a return to the darkdays of 2008, but a recognition of the need for a reasonable risk premium for poorer assets.

The occupier market has been stronger than many people expected, partlydue to the lack of supply of new units as development dried up over two yearsago and also because in some markets most notably central London thefinancial and professional markets have returned to some form of normality.

Residential

£15m property attracts tourists

There remains a structural imbalance between supply and demand inPrime Central London. However, demand remains strong for the best

properties in the best locations. In anything that is not the best supply anddemand remain more evenly balanced.

There have been over two hundred viewings of a £15,000,00 propertynear Thurloe Square. Whilst some of the viewings may have been

tourists as the house used to belong to Dame Margot Fonteyn, it illustratesthe depth of demand for prime property. There may be two hundred buyersbut there are not two hundred properties for sale!

Recent DealsLand Securities hasagreed to forward sell itsPark House developmenton London’s Oxford St.to a Qatari company for£250m at x%.

London & Stamford hasexchanged contractswith Warner Estate JointVentures and LloydsBanking Group’s to buythe Radial Distributionfund for £208.5m. a yieldof over 8%, making amost attractive incomeproducing investment.

At least 50% of OneHyde Park, the Candydevelopment in London’sKnightsbridge has beensold for record prices.The question remains asto whether the unsoldflats which one wouldhave thought are morelikely to be on the lowerfloors and facing theroad will achieve thesame level of pricing….or even sell at all.

Market Views & News■ COBAASSET MANAGEMENT

Coba’s view of the investment market

We have read much in recent months aboutthe recovery in the London market and the

prospects going forward. This rapid recovery inboth rents and capital values has highlighted theforesight of those who saw that the earlier pricefalls were an over correction with thefundamentals of supply and demand continuingto favour this sector.

Those who were brave in the darkest days of2009 are now reaping the benefit. In April 09,private investors EPIC acquired 15-17 BroadwickStreet, Soho at a time when no-one else waswilling to commit funds. This iconic RichardRogers designed headquarters building wasdeveloped and let in its entirety to Ford MotorCompany in 2000 on a 20 year lease.

EPIC acquired the property at probably the lowpoint in the market for £21m representing a netinitial yield of 7.9%.

Following the recovery in the market, EPIC soldthe property in April this year to PEC fund, a new

fund run by CBRE Investors. PEC have paid£31.7m for the property representing a net initialyield of 5.25%.

An increase in value of more than 50% in 12months represents a very nice return for aninvestor brave enough to buy counter cyclically tothe market.

Anatomy of a Property Investment

Sector Half Year 2010 Year on Year Future Trends Hot Spots

Offices

City of London

West End

Provincial

Retail

High Street Shops

Shopping Centres

Industrial

Distribution

Multi Occupied Estates

Residential

Central London

Market Views & News ■COBAASSET MANAGEMENT

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Coba Asset Management

Coba manage 5 funds in joint ventures with BDOinvesting in commercial property, in both CentralLondon and Scandinavia.

Total Assets under management: £150m

Funds on the runway:The Hyde Park Residential IIThe High Income FundThe Coba Club

Coba Asset Management43 Pall Mall, London SWIY 5JGTel 0207 930 1155www.cobaassetmanagement.com

COBA is a property wealth manager. We work with selected family offices, ultra high net worthprivate clients and their advisors to develop and implement property investment strategiesdesigned to generate both short term and long term wealth.

Our aim is to bring elements of the rigorous approach employed by institutions together with themore flexible and entrepreneurial approach favored by investors who are investing their ownmoney. Many private investors are attracted to property but do not have access to the market,the range of skills needed to minimise risk and maximisevalue or the network of relationships withspecialist agents and advisors needed to efficiently manage a portfolio of properties.

Coba Funds

COBAASSET MANAGEMENT

Coba Asset Management ■