Our US investments are sound and well researched: Alan Dixon

Our US investments are sound and well researched: Alan Dixon
Larry SchlesingerDecember 8, 2020

As we look back on 2011, Property Observer is republishing some of our most noteworthy stories of the year.

Alan Dixon, fund manager of Dixon Advisory’s US Masters Residential Fund, has defended the fund’s decision to buy 55 rental properties in Jersey City in Hudson County across the river from Manhattan, following a stinging attack from property market commentator Monique Sasson Wakelin. 

Wakelin called the fund’s choice of properties “speculative” and said they offered limited opportunities for capital growth. 

But Dixon says the investments represent a “huge opportunity” for Australian investors. 

“Our properties have average a purchase price just below US$200,000 compared to peak prices of approximately US$500,000 and an average construction value of $280,000. We are buying below construction replacement cost and getting the land value for free.

“We are getting net property yields of 8% to 12% and we are confident of capital growth over the medium term. Our firm’s view is that the Australian dollar is also moderately overvalued, so we expect some gains there as well,” he says. 

Dixon disagrees with Wakelin’s suggestion that the fund should buy in Manhattan instead due to her concern that only 30% of Jersey City locals are home owners and thus there is little chance of gentrification of the area. 

He says tenancy rules and rent controls in Manhattan mean that many renters pay more than $1,000 a month below market rents and cannot be evicted by the owner. 

“We comprehensively reviewed Manhattan and simply don’t agree with her.

“Hudson County has no rent control on properties with less than four families and eviction can be achieved in six weeks upon any non-payment of rent. In Manhattan (or Australia, for that matter) it can take four to six months.” 

He also defends the choice of fund’s choice of investment property, multi-family properties, and says they compare favourably with Australian duplexes or semi-detached properties. 

“Most properties are two, three or four families and have always been. They are just like duplexes or semi-detached properties in Australia, but in a local quirk they always stay on one title. They do not have design flaws, and the local residents consider it a normal way to live. 

He says Wakelin’s attack on the fund for buying an asset when it is low and depressed actually fills him with confidence because it’s effectively buying a “quality stock on a low price-to-earnings ratio” rather than not buy because others are not. 

“When it comes to valuation I’ll stick with Warren Buffett, Benjamin Graham and all great investors and I’ll be buying where there is deep value available and capitulation in the market prices.” 

Dixon has put his money where his mouth is and alongside his father Daryl Dixon (a director of the fund) has increased his own investment in the fund in the latest capital raising. 

He says “smart investors will be looking to have 4% to 12% of their SMSF portfolio in an excellent opportunity such as this”.

Aside from backing the location and choice of properties, Dixon also highlights the depth of research undertaken and US property knowledge base of the management team. 

‘[We] stared our process some 18 months ago now with a team including myself, our head of funds management, Alex MacLachlan, and our head of strategy, Chris Brown. 

“Alex grew up in New Jersey, he is a graduate of Cornell University and has an MBA from the Wharton School at the University of Pennsylvania. 

“Chris Brown is a dual US/Australian citizen and immediately prior to joining Dixon Advisory in 2008 was an executive director of UBS AG based in New York, where he had been living and working for the previous four years. As such we had very strong connections to allow us to research this opportunity properly,” Dixon writes in The Eureka Report. 

In addition, the fund has this week strengthened its advisory board with the appointment of Stuart Nisbett as independent director of the fund’s advisory board. 

Nisbett runs Archerfield Capital Partners, which specialises in equity raising, debt restructuring and mergers and acquisitions as well as strategic and project advice, with a focus on real estate” and formerly ran the property funds management arm of ANZ Investment Bank.

Referring to Wakelin’s October visit to Jersey City, Dixon says the fund didn’t take a day off on its holidays to buy properties – “we spent months and months researching and talking to the US’s leading economists, property professionals, money managers and investment bankers to make our decision. 

Dixon takes particurlar issue with Wakelin’s claim that Hudson County (where Jersey City is based) is unlikely to gentrify due a predominance of renters over buyers (70% to 30%)

“There has been a complete renovation and gentrification of Hoboken (about 8 kilometres north east of Jersey City) to make it one of the most desirable areas in the New York Metropolitan region.

“In the words of Wikipedia, 'the character of the city has changed from a blue-collar town to one of upscale shops and condominiums'."

Dixon list a number of other developments, which he says are “signs of strong gentrification and investment in the area” including the completion of Newport, Jersey City, a 600-acre master planned mixed use community with retail, residential, office and entertainment facilities.

“More than $10 billion has been invested since the project commenced in the 1980s,” he says.

Other developments include Goldman Sachs completing the tallest building in New Jersey, a 42-storey modern office building in Exchange Place in 2004, “part of what is sometimes referred to as “Wall Street West” due to the large concentration of financial firms based there.

Dixon also rubbishes Wakelin’s claim that the journey on the Path light railway from Jersey City to Manhattan is “no 15 minute commute” and can be unreliable.

“She is wrong. From Journal Square, where the fund owns a large number of properties, to the World Trade Centre is an 11-minute PATH train ride. It is on time, clean, air-conditioned and runs every four to five minutes in peak hour. It is rarely late,” says Dixon.

He says his office also has had a “chuckle” at Wakelin’s suggestion that properties the fund purchased should not be marketed as “New York metropolitan properties”.

“A quick visit to Wikipedia would have helped her reveal that ‘New York metropolitan’, ‘tri-state and ‘greater New York’ are completely interchangeable terms and all mean the same thing. Perhaps she should spend a little more time researching her subject. Indeed, Hudson County is the closest county or borough to Manhattan of all 30 counties in the area.”

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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