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  • Category: Real Estate Investing

    U.S. real estate – no more “low hanging fruit”

    The U.S. real estate market is once again attracting investor interest and there is an abundance of mortgage money available to buyers. Investors in the commercial and multi-family housing sectors appear confident the market recovery is real and sustainable. As a result, prices for these types of properties have been rising.

    The multi-family sector (i.e. apartment buildings) has been one of the strongest performers for many reasons – not the least of which is that since the financial crisis many Americans have abandoned the dream of home ownership.

    MoodysChart PCS 2014 300x241 U.S. real estate – no more “low hanging fruit”We have been investing in the U.S. multi-family space since 2011 and our clients now have interests in apartment buildings in Texas, Georgia, Florida and Tennessee. Our goal was to build a diversified portfolio of properties that would capture an attractive yield and a meaningful capital gain. The capital gain would be the result of both a recovering real estate market and strong growth in rents. Our experience to date has been very positive and if anything, the market has recovered more quickly than we anticipated.

    Venterra Realty, a specialty real estate investment company investing in multi-family residential communities in the southern United States, has been an important partner for Newport Private Wealth in this program.

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    Looking for income? Try looking south.

    b88c908598614c50b4792285133b98d8 florida 150x150 Looking for income? Try looking south.We look everywhere for income.

    Throughout our history, we have been able to earn attractive income-based returns for our clients ranging from the conventional (i.e. corporate bonds) to the hard to access (i.e. mezzanine debt on a privately-owned self-storage business).

    We are not alone in the pursuit of income.  Investors throughout the world have been seeking yield in an era of low economic growth and mediocre equity returns.  As a result, money has flooded into every popular idea and driven up the prices and, regretfully, driven down yields.

    Specifically, a lot of money has flowed into Canada’s real estate market – a sector that has been a reliable source of income for us and other investors. Much of the interest has come from overseas.  Foreign investors have liked our real estate, our economy, our currency and our stable political environment.  This inflow of capital has pushed up prices to the point that we now think there are more significant risk/reward opportunities elsewhere. [read more >>]

    Finding investment opportunities when the economy isn’t handing them out

    iStock 000014863867Medium priv eq banner 300x94 Finding investment opportunities when the economy isnt handing them outLast week, we organized a lunchtime panel with four outstanding financial minds that are part of the pool of talent we have to draw on for the management of client investment portfolios:

    • Maureen Farrow, (economist), President, Economap
    • Tye Bousada, (global equities), President & Co-CEO, Edgepoint Investment Group Inc.
    • Rick Grafton, (energy), CEO, Grafton Asset Management
    • Corrado Russo, (real estate), Managing Director, Global Securities and Investments, Timbercreek Asset Management Inc.

    It was a lengthy and meaty conversation about the state of the global economy, how Canada is faring and what it all means for clients of Newport Private Wealth. This summary won’t fully do justice to the depth and scope of the presentations, but we will try to boil a 90 minute discussion down to a readable blog post for you.
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    What type of real estate investor are you?

    i b9802e2eb3639c5960b95e8866ba9a22 Dec14 blog building What type of real estate investor are you?I opened the Globe and Mail today to read with interest the article, How the rich are investing in real estate right now, written by Thane Stenner.

    Mr. Stenner had an interesting take on what he defined as four different types of real estate investors. As readers of this blog know, real estate has long been an important plank in our investment platform and I thought the subject merited further discussion of the different types of real estate investment opportunities available to high net worth investors:

    Development Real Estate – A longer term investment, this category delivers some of the highest returns available in the real estate asset category. However, it is also the riskiest in that capital can be tied up for years as the property is developed and leased out to tenants.

    Opportunities in this category include loans, which offer higher than market yields due to the risk associated with vacant land, and capital investments, where the investor takes ownership of a portion of the property along with the developer. An economic downturn, however, can result in these properties remaining undeveloped, and potentially tying up your investment for longer than anticipated.

    Income Producing Real Estate – Both commercial property and multi-residential housing units offer an excellent way to reduce risk and earn a steady cash flow. However, for passive investors, it is important to have experienced and well-qualified property managers who understand the day to day complexities of this type of real estate. After all, who wants a call at 2:00am because of a leaky pipe?

    Well-diversified portfolios will include investments in many different properties in many different geographic locations thus reducing the risk associated with any one real estate market. Income- producing residential real estate usually performs very well during economic downturns as those who are unable to afford a home turn to rentals.

    Turn-Around Real Estate – An offshoot of income-producing real estate, these diamonds in the rough offer the potential for both capital gains and income. Purchasing a property that is undervalued due to a lack of capital investment and investing more to bring the units up to current standards can result in higher rental income and a capital gain when the property is eventually sold. Unlike “flipping” a house, however, investing in turn-around apartment units requires more capital and a longer term commitment. In the article,

    Mr. Stenner points to the United States as another example of this category. Areas where property may be undervalued, such as Arizona for example, can present an opportunity to investors. However, investors should understand that employment, economic growth and competing developments will all have an effect on whether these investments ultimately grow in value. In addition, Canadian residents should be aware of the added costs from non-resident taxes, legal and accounting fees from having to file US tax returns if you earn income, and the potential impact of estate tax.

    Mortgages – There is a large secondary market for loans completely unrelated to the big 5 banks. Developers and investors often turn to this market because they need to close faster than a bank is willing to or because the bank is unwilling to lend (for any number of reasons unrelated to the opportunity available). Often, the secondary market proves to be more flexible than the banks are willing to be. These loans are often shorter term and have higher yields and carry the property as collateral in the event that the borrower is unable to make payments.

    For our part, we invest in all four of these categories, with the majority being invested in income real estate. We do so to diversify and enhance our returns.

    While Mr. Stenner points to a number of publicly traded securities or Real Estate Investment Trusts (REITs) as a method for investing in real estate, in my view, this reduces one of the key advantages to real estate: risk reduction.

    While these securities often do not have high correlations with the overall market, they typically still fall in value when public markets undergo periods of volatility. In 2008, the S&P/ TSX Composite Index fell 49.3% from its high. The TSX Capped REIT Index fell 62.66% from its high and that fall began much earlier than the broader market.

    While it is true that REITs distribute significant cash flow, making this category attractive, they are still subject to market volatility. Private real estate investments may offer some advantages in that their value does not bounce around with the stock market everyday and potentially offer more re-development or capital gain potential than public investments. The challenge however is they are typically more difficult to access for individual investors.

    Real estate should be an investment held in every investor’s portfolio. However, it is a complicated asset category and unless you have the expertise, you may want to find professional managers who understand and specialize in this area.

    Landlord or investor?

    i ea075cba0d2eb850555a932785b9b21c RE White paper st catherines ON Landlord or investor?Readers of this blog will know that we have written a lot about investing in real estate — commercial, multi-residential, etc.   We like the asset class for its diversification, cash flow, capital appreciation potential and inflation protection.  So we decided to share some of our thinking in this white paper Real returns from real assets: How to profit from investment in multi-residential real estate.

     

    In it we discuss how Canada’s demographics favour apartment rentals; why the market is ripe for consolidation; along with the pros and cons of various investment options.  Hope you enjoy it.  Feel free to send us a note if you have any comments or questions.

    Read between the headlines for opportunity in commercial real estate

    If you’ve been reading the headlines coming out of the U.S. recently, you know the bottom’s falling out of the commercial property market. Defaults, delinquencies and foreclosures on office buildings, retail centres, industrial warehouses, etc. have swept the country. Pretty bearish conditions for mortgage holders on these properties.

    In Canada, however, despite a difficult recession, the situation is quite a bit different.  And this is creating opportunities for investors north of the border.

    So say Don and Ben Rodney– two experts who ought to know.

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