Property debt minnow Develop North plans £58m fundraise

The property finance fund is planning a bumper fundraise of more than double its current net asset value as it moves into bricks and mortar.

Property finance minnow Develop North (DVNO) is targeting a fundraise of up to £58m as it pivots into bricks and mortar.

The fund, which was set up in 2017 and is managed by Tier One Capital’s Ian McElroy and Brendan O’Grady, is likely to be off radar for most investors but is hoping to garner enough interest to scale up, with the raise being more than double its current net asset value (NAV) of £25m.

It plans to issue new shares to both institutional and retail investors at a price of 81.60p per share, with the latter being offered shares through BookBuild.

The price represents a 5.3% premium to the latest NAV per share as at 30 November of 77.48p and a 15% premium to the closing share price as at 16 January of 71p, according to Winterflood’s head of research Emma Bird.

The 5.6%-yielder currently operates as a property-backed lending fund, but asked shareholders for permission to expand its investment remit last July. This will allow it to use any newly-raised cash to invest in physical commercial and residential property.

In October, the board increased the level of borrowing the fund could take out from 30% to 35% of NAV, providing it with further headroom.

The managers have already identified more than £175m of opportunities across retail, leisure, industrial and office sectors in the North East. If they raise £25m via the fundraising, they expect to have invested the cash within six months.

They said any money between £25m and £55.8m can be invested between three to nine months.

McElroy and O’Grady are targeting NAV total returns of 10-11% a year over the next seven years, including 4% annual capital uplift and a target dividend of 6-7%.

Over the past year, Develop North shares have lagged its Association of Investment Companies (AIC) Property - Debt sector peers with a fall of 4% versus an average rise of 3% in the sector. However, the NAV is up 2.1% versus 1.3% on average.

Develop North is not alone in its small stature, with plenty of trusts coming in under the £200m mark. But that doesn’t mean they can’t deliver string returns − three of the five best performing trusts of 2025 fall under this size, including top performer Golden Prospects Precious Metals (GPM), DP Aircraft I (DPA), and CQS Natural Resources Growth & Income (CYN).

Develop North is decidedly below the £200m mark and its 7.7% discount means its current market cap is just £18m, but it is still a top small portfolio pick for Saftar Sarwar, chief investment officer and wealth manager of Binary Capital.

He said it combines a ‘strong yield and an opportunity for capital growth in property assets in the North East of England and Scotland’.

‘With more popular property markets fully priced with less than attractive yields, Develop North is an interesting opportunity,’ said Sarwar, adding the yield is fully covered.

‘Crucially, the management has good local knowledge, and investment trusts that can deploy capital selectively, recycle assets and avoid forced selling are well positioned. For long-term investors seeking differentiated income, asset backing and exposure away from crowded public markets, this strategy is appealing.’