How to diversify out of SA equities and into commercial real estate in the US

*This content is brought to you by OrbVest

By Justin Clarke* 

Despite a global health crisis now in its third or fourth wave, and a wave of civil unrest and looting in KwaZulu-Natal and Gauteng in mid-July, from a financial perspective 2021 has delivered very pleasing returns for investors in South African equities.

Justin Clarke

But the clouds are beginning to gather. September was negative for most key JSE indices, as concerns around Chinese regulation of online gaming hit heavyweights Naspers and Prosus, and commodity prices softened. Platinum miners, in particular, have yielded some of their recent gains, which reflected a 17% month-on-month decline in the platinum index.

The rand weakened 3.7% against the dollar in September compared with August, as global money continues to flow back into the US on the prospect of the tapering of stimulus measures later this year or early next year.

At 5 October, the FTSE/JSE All-Share Index (ALSI) closed at 64,542, reflecting a gain of 18.4% for the 12 months compared with the same 12-month period in 2020. However, the S&P 500, at 4,345, was up 27.5% in the same period, underscoring the resilience of the world’s biggest economy.

The stock market is a great way to build wealth over time, but it is not the only way. Diversification is essential to help investors to withstand a prolonged economic downturn or even flat stock market returns over the coming years. Certain specialised areas of real estate, such as logistics and medical office buildings, have demonstrated their stability over time, even through the upheavals of Covid-19.

OrbVest, a global real estate company that invests in US income-producing medical office buildings, has seen increasing interest from South Africans and other foreign investors looking to hedge against stock market volatility and rising inflation. Its speciality is sourcing and acquiring premier commercial real estate investments in the healthcare sector in some of the fastest-growing metropolitan areas of the US.

Healthcare real estate has historically been a source of steady growth and investor returns. The sector’s resilience before and during the pandemic is testimony to the centrality of health care in all our lives, and it remains well-positioned for long-term capital appreciation. As the American population ages, it will inevitably create rising demand for healthcare (and healthcare real estate).

OrbVest has amassed an impressive portfolio of over 1.4 million square feet, having acquired over $360m in real estate over the last few years, making it simple for investors to own a portion of a prime asset only normally accessible to large US REITS and institutional investors.

OrbVest is actively pursuing additional medical office building investments across the US to provide enhanced diversification for its investors and reduce concentration risk. Its most recent acquisition is the West Orange Professional Centre in Orlando, Florida. The 38,537-square-foot campus contains two medical office buildings and is located directly across the street from Orlando Health – Health Central Hospital.

OrbVest’s goal is to make investing in global real estate simple for qualified small and large investors who are able to invest from as little as $5,000. Clients use a convenient online platform to invest directly into low-risk healthcare commercial real estate.

The investments generate regular dividends that are distributed on a quarterly basis, creating annuity income and long-term wealth over the period of investment. Typically, assets are held for five years, producing capital gains for investors in addition to dividend income.

OrbVest has been rapidly growing its portfolio of high-quality investment properties over the past several months and has a steady pipeline of attractive new investments.

In 2021 alone, OrbVest has acquired properties in Jacksonville, Florida; Orlando, Florida; Princeton, New Jersey; Fayetteville, Georgia; and Phoenix, Arizona.

OrbVest properties are located in areas where populations are large and stable or are predicted to grow, particularly the so-called “Sun Belt” states – the 15 states in the south that are popular with both retirees and economically-active people. The group focuses on multi-tenanted medical office buildings, with high-quality tenants and weighted average lease terms of around five years or longer.

Real estate, particularly commercial real estate, offers several distinct advantages over stock market investing. Commercial real estate provides a unique inflation hedge because the costs of new construction or property renovations tend to be in line with inflation. That means that when costs rise, landlords and property managers can increase rental rates to keep pace with rising inflation. In addition, well-managed properties have built in escalation clauses in their leases that offset inflation.

For investors looking to hedge their investments against inflation risk, commercial real estate, especially medical office buildings and healthcare-related properties, offer the ability to maximise potential investment returns and avoid concentration risk in equities.

  • Justin Clarke is the COO of OrbVest.
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