Property investing: Medical buildings take the pain out of investing in US real estate

This webinar was sponsored by OrbVest

In this sponsored webinar, OrbVest CEO Martin Freeman speaks to BizNews founder Alec Hogg about a development that will give new and existing clients an opportunity to invest in medical buildings in the United States. Freeman says that OrbVest Diversified Holdings (ODH) expects to give an annual return of 8% per annum with a minimum investment of $5,000. In this webinar, Freeman explains why this is such an attractive development and details risk and essential information for prospective investors. – Bernice Maune

You’ve got your new product. That’s really the reason why we’re having this conversation today. It is something very different. Up to now, as you said, all of the investments have gone into individual buildings. Now you’re doing it differently. Just explain to us why. 

The first thing is we really are proud of this. You know, we’re planning ODH for a number of months now. What is it? It’s OrbVest Diversified Holdings and essentially it’s a portfolio of our assets and it is to further diversify your investment and spread your risk over a number of buildings. So in terms of ODH, it will be a minimum of eight investments. Four of them will be existing buildings that we already have that are producing returns right now. And four of them will be new buildings that we are going to be acquiring in the next couple of months.

The question is, why are we now doing this? And the real reason is that our primary criteria for existence is the preservation of capital of our investors.

And so we’ve had, for a long time, demands and requests from people, whether it be a small investor or a large investor, to say, instead of me going and investing one by one into every building and having to understand numbers and understand the fundamentals of real estate, when I’m new to real estate, can’t you just give me a portfolio of assets and I’ll invest one amount? And you invest it across a whole lot of assets, and that’s what ODH does.

It allows a person to make a single investment into ODH and basically then build immediately a healthcare portfolio in the United States. You are essentially becoming a real estate owner in the United States. And for me, the most exciting thing is, the biggest impact, is that for the smaller investors, as you know, our minimum investment is $5,000 per building. And so if you wanted to build a portfolio and have eight investments, you would have to invest $40,000, which is over R700,000. And that’s beyond the realm for most South Africans.

However, with this product, the minimum investment is still $5,000. But for R88,000 odd it means pretty much there is an enormous amount of people in South Africa that can now invest into a portfolio of assets. It essentially means that if you take your $5,000 and you divide it over the minimum of eight investments, you’re essentially investing $600 per building, which means that most people are now able to suddenly invest into buildings and have the stability and the diversification through the single ODH product.

Read also: Recession-proof strategy: OrbVest shrugs off Coronavirus.

It makes a lot of sense and that’s why there are now fractional shares. I was actually looking  earlier this morning with a friend of mine on putting together a US portfolio. And if you going to do it the way we’ve got it in our BizNews portfolio, you’ve got to put in $16,000 to be able to afford one Amazon share, which is $3,000, is 20% of your portfolio in the way we structured it.

So fractional, it just makes a lot of sense. But those four existing properties – up to now, our conversations have always been that they are individual properties and presumably they are all  fully sold or fully invested in. Are people cashing in some of their investments that you can put this into the portfolio? How does that work?

So, the area of where does the equity come from – it comes from essentially four places. The first is that, I’ll just say that going forward, in terms of new investments, our own OrbVest fund will get priority in terms of any investment.

The second thing is that existing investors, it’s not that they are cashing in, it’s that now and then over time, you know, people have personal circumstances, it might be Covid, it might be that they are emigrating and they might have $100,000 in a building. And, you and I have often spoken about, are people able to cash out if they ever need to, given that it’s a five-year product? And so what we’ve normally done is we’ve floated that to the other investors in that building and it normally gets snapped up. Going forward, we as OrbVest fund will be acquiring those shares back from investors.

Read also: Hennie Bezuidenhoudt: How OrbVest hedges risk when investing in US medical properties

The third is that since the start of the pandemic, there were one or two of our larger investors who had committed and have come to us and said, look, given Covid and their own businesses and their personal situation, they would prefer maybe to give it a miss at the moment and we’ll be grabbing those equity stakes.

And then the last is that we just recently launched our Princeton building in New Jersey, and it’s been oversubscribed. In order to ensure that we close on time within the 45 days, we’ll sometimes use a last bit of bridging finance to close and ensure that we can then take down the building. That bridging amount as we then start to repay it and cash it out and we’ve acquired the building, we will be earmarking portions of that bridging amount for our fund, which means that in each of our popular buildings, we’re able to somehow get an equity stake in the buildings. Obviously, there’s a lot of rules around ODH. It cannot be more than 10% of the equity. It cannot be more than X% of exposure in the fund because at all times it’s about minimising the risk of the investor and making sure that we can deliver on the expected returns to the investor.

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