Investcorp makes $300m investment in US real estate but buying too early?
Posted on 20 November 2011 with 1 comment from readers
Bahrain based investment bank Investcorp has just announced three more estate acquisitions in the USA bringing the total to eight worth some $300 million this year. It is a bold play on the recovery of the US economy in general and its bombed out real estate sector in particular.
Investcorp has just completed the purchase of the seven-storey Park Tower office complex in Long Beach, California, pictured above for an undisclosed amount. This is Class A office accomodation and follows the $37 million acquisition of the Bethesda Health City building in Boynton Beach, Florida and the Ashford community of 15 residential buildings in Atlanta.
Bargain hunting
The investment bank said the three properties enjoy high rental yields and high quality tenants. Its strategy is to invest near to large commercial areas or economic hubs where it believes that the real estate slump makes it ‘easier to secure private deals at attractive valuations’.
All of the latest purchases boast occupancy levels above 90 per cent. Clearly Investcorp is being highly selective in its acquisitions and not just splashing money around on US property wherever it can find a bargain.
Does it make sense for other institutions and individuals to go buying property now in the US? It is no slam dunk. The US economy is growing again but could still enter a double-dip recession, especially after the presidential election year is over in 2012 and austerity measures are enacted.
Low interest rates
Interest rates are presently set at record lows and this is unsustainable in the long-term unless savers and pensioners are to starve. The pressure from the eurozone is upwards on global interest rates whatever the Fed might care to set as its long-term target.
Higher interest rates will return and that will be bad for property investors. That will likely mean Investcorp sees the capital value of this portfolio decline.
However, securing good real estate deals now with prices so depressed does make some sense because capital values are already so low that they may not have so much further to decline. That said it still looks a bit early to invest in US real estate, even in the quality end.
1 Comment posted by readers:
This is similar to the “Rich Dad” philosophy of real estate investing. Buy assets with strong yields in booming areas. The old adage “buy low sell high” is easier said than done because quality assets are only cheap when others are fearful.
You can say the same thing about stocks where many high-quality, cash-rich, high-dividend companies are going cheap, because many think they will get cheaper still.