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Area Buys 30% Stake in Best-Performing U.K. Property Fund

Area Property Partners LP, the asset manager founded by William Mack, bought 30 percent of X-Leisure, the best-performing U.K. real estate fund last year and the owner of buildings worth 528 million pounds ($861 million).

The holding in Jersey-registered X-Leisure was purchased for 65 million pounds from Britain’s largest pension fund, BT Pension Scheme, according to Hermes Fund Managers Ltd., which manages BTPS. Hermes created X-Leisure in 2004 with Capital & Regional Plc, which owns an 11.9 percent stake in the fund.

“It’s not a sector that we wanted to hold any longer,” Chris Taylor, head of real estate at Hermes, said in an interview yesterday at the asset manager’s office in London. Area, based in New York, declined to comment.

X-Leisure owns the marina at Brighton and 18 other properties across the U.K. accommodating facilities such as indoor ski slopes, gymnasiums, bowling alleys, movie theaters, shops, bars and restaurants. A venture of Hermes and Capital & Regional manages the fund’s properties under a team led by Pierre-Yves Gerbeau, former head of the U.K.’s Millennium Dome.

The fund returned almost 46 percent in 2010 as property values increased for the first time in three years, beating 58 other U.K. real estate funds, according to Investment Property Databank Ltd. A slide in values caused X-Leisure to lose 49 percent in 2009 and 50 percent in 2008, IPD data show.

New Shareholder

Hermes and Capital & Regional raised 50 million pounds in the third quarter of 2009 to recapitalize X-Leisure and negotiated new loan terms with the fund’s banks.

Taylor said the sale of the X-Leisure stake is part of his strategy to reduce his company’s investments in closed-end funds and to have greater control over BTPS’s 4 billion pounds of real estate.

Taylor joined Hermes in November last year and plans to diversify Hermes’s property investments outside the U.K. and reduce debt. Aside from running BTPS, Hermes Real Estate manages another 1 billion pounds of real estate through the Hermes Property Unit Trust for charities and pension funds, a logistics fund and as owner of U.K. developers MEPC and Argent.

Hermes Fund Managers, the parent, is owned by BT Pension Scheme and oversees 25.6 billion pounds of assets, according to its website.

Junction Fund

The holding in X-Leisure was acquired by Area European Real Estate Fund III and was at least Area Property’s third transaction involving a fund linked to Capital & Regional. Two years ago, Area paid 50 million pounds for a stake in the Junction Fund, which is managed by Capital & Regional and owns U.K. retail parks, in a fundraising in which it acquired units at a discount of about 40 percent.

Area and Capital & Regional also have a venture that owns 48 retail properties in Germany valued at 580 million euros as of the end of June 2010.

National Australia Bank Ltd. acquired a 35 percent stake in Area earlier this month for an undisclosed sum. Mack, Area’s chairman, and Lee Neibart, chief executive officer, will remain in charge of all investment decisions, the real estate fund manager said in a statement at the time.

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