American fears of second recession bulk up Dixon's US property portfolio
American vendors worried about a second GFC have helped Dixon Advisory add discounted properties to its US Masters Residential Property Fund, according to managing director Alan Dixon.
“It has been helpful for purchases because vendors are concerned about a second recession,” Dixon tells Property Observer. “It has made vendors think things may get worse so they are willing to take the deal and sell now.”
Dixon says the New York economy is showing reasonable resilience and the outlook is not as pessimistic as in other parts of the country.
“It’s a good time to be putting the portfolio together,” he says.
At the start of July Dixon told Property Observer the fund had bought 19 properties in New Jersey for a combined price of about US$3.8 million (A$3.54 million), though no contracts had been exchanged.
It has since exchanged contracts on six properties with a combined value of over US$1.17 million (A$1.12 million) and accepted conditional acceptances for 17 properties with an estimated combined acquisition cost of US$3.08 million ($2.96 million) during the month taking the total to 23.
In addition to the properties already purchased, the fund inspected a total of 49 properties in July.
Some of the properties were bought as vacant possessions, but all are now tenanted.
Based on the pre-purchase due diligence undertaken, the properties are expected to achieve annualised net yields of 9.3% to 11.3%, with a weighted average annualised net yield of 10.2%.
Five out of the six properties purchased to date are detached houses, and all have been subdivided into two apartments.
The most expensive cost about $254,000 and is a detached duplex featured a two-bedroom apartment returning monthly rent of $1,500 and a five-bedroom apartment returning rent of $2,000 per month. The estimated annual yield is 9.3%.
All properties are located close to public transport and major roadways leading into Manhattan.
Dixon says the fund may consider issuing a further tranche of share capital to investors based on the feedback received to date.
“Chances are we may be able to raise more money before we spend what we have,” he says.
The fund raised close to $70 million prior to its listing on the small and medium cap National Stock Exchange.
The stock has been trading between $1.61 and a $1.62 at a small premium to its net tangible assets, which have risen from $1.53 to $1.55.
