US fund Domus acquires multi-family assets for $168 million with Australian investment
Domus Multifamily Real Estate Fund has completed the acquisition of a portfolio of US large-scale multifamily assets with Australian investors in an off-market deal for $168 million.
Domus, a managed investment scheme, teamed up with its investment partner US-based Geringer Capital, has acquired eight large-scale multifamily buildings, with the raising for seven assets fully subscribed and an additional raising for the eighth asset to be completed by August 2017, it said.
Multifamily real estate is any building with five or more separate dwellings held on a single legal title and leased to individual tenants.
The Domus Fund expects to invest in US multifamily assets with below free-market rents and below replacement cost in areas which are poised for growth.
US multifamily has consistently proved to be one of the most secure and stable of all real estate sectors over the long term, according to Domus, which has a long-term acquisition and hold strategy.
The purchase cost and refurbishment came to US$174 million. Domus acquired the assets within the portfolio using floating rate acquisition debt of US$140 million, with the fund raising over US$20 million in equity.
LS Global Advisors, an Australian advisory group, led the local capital raising for Domus in Australia.
“Australian investors are confident because they are investing at a time when home ownership rates in the United States are falling and rentals are rising due to affordability issues plus the prospect of 35 year financing a major drawcard,” said Les Koltai, principal of LS Global Advisors.
In 2013, the Domus US Multifamily Real Estate Fund had plans to test the test Australian investor appetite for American rental property, with a listing on the ASX. But the IPO plans fizzled out in the wake of the US Federal Reserve signalling an end to the quantitative easing policy and its repercussions on markets.
With the recent acquisitions, Domus has again tapped sophisticated Australian investors.
“The multifamily class of assets is unique to the US which accounted for the significant interest from Australians in the raising,” said chief executive of Geringer Capital, Robert Geringer.
The assets are in a range of locations across the western states of the US in Arizona, Colorado, Oregon and Utah.
They provide stable long- term income and have the potential for future capital growth, according to Geringer.
One of the advantages of multifamily real estate in the United States is that it can qualify for low fixed rate, long term (up to 35 years) non-recourse US Government insured debt which currently carries an interest rate of 3.25 % per annum.
The debt facility was provided by Jeffries-LoanCore and arranged by real estate investment bankers Ackman Ziff.
Domus said it will make improvements to the properties to increase rental income ahead of refinancing with low, fixed rate, long term, non-recourse, US Government guaranteed debt under the HUD Program or other US Government agency debt.
“Investors liked the attractive returns with a conservatively forecast investor IRR of more than 18%, the repayment of invested capital in approximately 18 months’ time and the USD exposure,” said Les Koltai.
Each individual property contains between 83 and 269 apartments housed throughout two or three level buildings and spread across well maintained acreage. The portfolio comprises 1,296 individual apartments.
The purchase price for the portfolio was negotiated off-market by Geringer Capital and is below the estimated replacement cost, said Domus.
Together with Geringer Capital, Domus will make further large scale portfolio acquisitions which it is actively pursuing ahead of an IPO.
Domus Investment Management chairman and former head of institutional property lending for the Commonwealth Bank, Peter Barne Australian investors were being offered solid returns underpinned by long term debt capital “which is simply not available in the Australian market”.