Value of New Star property fund takes a tumble

The value of the £2.1 billion New Star UK Property trust has dropped by almost 18% since the end of July. Last week, in the first of its bi-monthly valuations, the value was cut by 8.2%.

The drop in value of over the previous four months was 9.6%, bringing the total reduction since mid-summer to 17.8%.

New Star says this reduction in value reflects negative sentiment towards British commercial property. The portfolio will continue to be revalued at least twice a month, by independent valuers CB Richard Ellis, until the property market returns to a more stable state, it says.

The correction in values was deeper than envisaged, according to New Star, and with the market moving so quickly, the group says it is fairer to existing, redeeming and prospective investors to re-value more frequently.

Investor appetite for commercial property funds has fallen sharply over the past two months.

According to the Investment Management Association (IMA) inflows into property funds slowed over the summer, but remained positive until October, when there were net outflows of £159m.

However, New Star says the prospects for rental income growth from the portfolio have not changed materially since mid-summer. It says the publicity given to redemptions from open-ended commercial property funds has prompted undue scepticism.

The New Star UK Property trust, launched in June 1999 and managed by Gregor Logan and Roger Dosset, is the second-biggest retail commercial property fund in Britain. The largest is the £4.2 billion Norwich Property trust. It devalued last month by 7.5%. The fall in value of the New Star fund at the end of November was 4.08%.