UK’s wealthy investors pile into US real estate
According to the Stonehage Group, a multi-family office for ultra-high-net-worth families and entrepreneurs, behind equities and fixed income, US real estate currently forms the largest proportion of a typical ultra-wealthy family’s portfolio, accounting for between 8-10%.
In many cases investors have almost double in US real estate compared to what they have in other alternative investments, such as gold or commodities. Typically no more than 4% of a client’s portfolio is invested in these assets.
Property prices in some regions of the US have fallen by 50% since the end of 2007, but prices have now stabilised and, in some locations, have begun to rise. In these areas the oversupply of housing stock has cleared, and inventory levels are beginning to lag demand, pushing up prices.
According to Stonehage, few investors have direct exposure to US real estate because in most cases the tax implications are too onerous but many are invested via the debt markets, specifically mortgage-backed securities.
John Veale, Chief Investment Officer at Stonehage Investment Partners, said: “The US housing market suffered after the crash of 2008, as many banks and other lenders shed real estate assets. This created excess supply, and it took until early 2012 for inventory levels in many US regions to return to pre-crisis levels. We saw this as an ideal time for clients to invest.
“The fund manager we selected for the first client allocation generated a 40% return last year from residential mortgage backed securities. The second allocation later in the year is still in the process of deploying capital, but our return expectations are an annualised 10-12% over the life of the vehicle. We expect to generate returns from both capital appreciation and ongoing yield.
“For our most recent allocation, the investments are mainly concentrated in what we would term tier two areas. For example, the second of the funds we chose to work with has invested in commercial buildings in Las Vegas and Illinois as well as buying a portfolio of residential mortgages from a regional US bank.”