New fund is a gateway to investing in American property
With residential prices continuing to roar ahead in many Australian cities, some real estate investors will start to look offshore for better opportunities and also to diversify their risk.
For others, though, the hassles associated with direct investing overseas are a turn-off.
Indeed, we've all read the story about the Aussie-born landlord who was shot dead when arguing with a tenant he was trying to evict from a Detroit apartment building a couple of years ago.
A new fund, the USA Residential Fund, that will invest in a portfolio of US properties targeting an initial return of 10% to 12% a year, will provide an opportunity for investors who view the local market as fully priced but don't have the inclination to DIY on foreign shores.
Owen Lennie, the fund chairman and an Australian property identity, says: "The fund provides a convenient and simple gateway for investors to access the growth opportunities in the US residential market. It avoids all the complexities of trying to buy houses directly."
But, of course, you have to pay for this convenience. The management fee is set at 0.75% of gross asset value but, as spelled out in the product disclosure statement, this could rise up to a maximum of 1%. As well there is an expense recovery fee, which is estimated to vary from 0.76% to 1.04% of the gross asset value of the fund.
The USA Residential Fund, due to list on the ASX in December, joins a limited list of funds providing access to non-commercial offshore property.
To date these funds have concentrated on the US market because it's perceived to have been the country with the best buying opportunities in the wake of the GFC. When and if we will see funds catering to investors who would like to diversify into European, Asian or other residential markets remains to be seen.
Positioned to take advantage of a recovering rather than a distressed market, the USA Residential Fund will have an initial portfolio of 149 houses purchased from three existing unlisted managed investment schemes. The first purchases were of repossessed houses which were then "rehabilitated" and rented, Lennie says. "Now that new construction is under way the latest additions to the portfolio have been brand new houses which rent quickly and easily."
The fund is now looking to branch into apartments and repositioning, which involves buying houses in areas where there is good owner-occupier demand and extensively renovating the houses for sale.
"This strategy reflects the reluctance of US lenders to lend against 'as-if-complete' valuations in the post GFC environment," Lennie says. It is focusing on select US cities that have faster economic, job and population growth, such as Atlanta in Georgia and Dallas and Houston in Texas. The fund also finds tenants for the properties and looks after insurance, taxes, repairs and compliance with landlord and tenant legislation.
It will earn most of its income from rents but plans to also make money from buying homes, renovating and selling them on to owner-occupiers.
As a specialist real estate investment trust (REIT), the USA Residential Fund aims to pay distributions of between 6c and 8c a year in Aussie currency per stapled security. There will be no requirement for investors to file US tax returns.
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