Us Real Estate Investment: How to assemble multiple asset portfolios

In a pleasant conversation, moderated by Diario Financiero and DF MAS editor Marily Lüders, prominent panelists with extensive experience in the residential and commercial income markets in the United States, analyzed interesting alternatives of real estate investment in that country, especially for Chileans.

 

On Tuesday, August 31, Frontal Trust, the specialist in alternative assets, and Diario Financiero, held the digital meeting Real Estate Investment in the USA: How to build multi-asset portfolios, a conversation attended by Jordan Suppan, CEO of Leste Credit; Matías Recchia, founder and CEO of Unlock Real Estate; and Luis Felipe San Martin, partner and director of Frontal Trust US.

Jordan Suppan, a leading entrepreneur in the US residential income market, began his presentation by pointing out that there is currently a structural imbalance between housing supply and demand, being considerably higher in the so-called SFR (single family residential), showing deficits of about 3 million units. This, caused mainly by the Coronavirus pandemic, which has generated migrations toward the periphery and a growing tendency to work from home.

“The inventory deficit is 20% for purchase demand and 36% for lease demand. If, before the pandemic, this type of asset took between 90 and 120 days to sell or lease, today this takes no more than 30 days”, Suppan said, adding that of the current supply, 65% are homes that are older than 30 years, “so they need to be modernized.”

Based on these fundamentals, a few months ago Frontal Trust and Leste Credit created a private debt fund, aimed precisely at financing investors seeking to buy houses or apartments in the United States, for renovation and then to lease or sell them. According to Luis Felipe San Martín, a partner in charge of the office of Frontal Trust US, “this is a quite an attractive financial product, very similar to an investment in fixed income, with high short-term interest and a real estate backing where the collateral, in this case, the house, rises and rises in value, as a result of high demand and low supply… It has been a very good business, which has us very excited to move forward.”

The second presentation, by Matías Recchia, addressed investment opportunities in commercial income, focusing on commercial property portfolios with net leases (triple net leases) which, according to him, are very similar to a fixed income bond. “Under this model, the payment of taxes, insurance, and maintenance is at the expense of the lessee of the property, so the landlord ends up with income that is very similar to the net income, which is very attractive”, Recchia said.

Another feature is that these are long-term contracts, which is very attractive in these times of inflationary risk, as they have a personal or corporate guarantee that protects the owner throughout the duration of the contract.

“This market of more than US$80 billion a year in the United States which has plenty of liquidity, especially for transactions above US$20 billion”, Recchia said, adding that there are two strategies to add value with these assets: the first is to maintain these portfolios for long periods (10 or 20 years), with profitability ranging from 6% to 10% per year; and the second, which is used in Unlock, is to consolidate individual assets and then sell those portfolios to institutional investors, capturing the spread between the price at which the asset is purchased and the price at which it is sold.”

The important thing to consider when arranging these portfolios, according to Recchia, is to focus on contracts of duration above 10 years; to ensure that those contracts have annual increases in income to be protected in the event of inflation in the United States; to maintain diversified assets, in the sense that not all properties are operated by the same company or in the same geographical area; and to have a good maintenance plan.

Currently at Unlock are very focused on real estate of the medical industry.  According to Recchia, they have more than 200 properties mapped, with location, owner and tenant name, information of the area and other data, which is cross-checked completely online. “Transactions that usually take four to eight months, we close them in one month, thanks to our digital model.”

Whereas residential and commercial always come together, as people inevitably need trade and services, according to Recchia the most attractive areas for this type of investment are the so-called Sunbelt States, which comprise the southern part of the United States, including the states of Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi, New Mexico, South Carolina, Texas, approximately two-thirds of California (up to the Greater Sacramento Area), and parts of North Carolina, Nevada, and Utah. In residential, however, both San Martín and Suppan recommend Miami, Florida and Austin, Texas.

During the conversation, they also addressed inflationary risks, the tax changes that could eventually occur in the United States, and the political situation in that country, providing a very comprehensive analysis (see video).

At the end of their presentations, each of the speakers made a recommendation to follow the real estate market in the United States. Jordan Suppan recommended the site Green Street Analytics (https://www.greenstreet.com/), Matías Recchia recommended viewing public reports, mainly those of Store Capital (https://www.storecapital.com/) and Luis Felipe San Martín the podcats of Bigger Pockets (https://www.biggerpockets.com/podcast), which is more “mundane” than the previous ones, but not least interesting.

The meeting lasted more than an hour and had more than 800 persons connected through the frontal Trust Zoom platform and Diario Financiero DF Live platform.