Spire Capital were delighted to recently host presentations in Sydney, Brisbane and Melbourne, at which Spire’s US real estate sub-advisor, Bridge Investment Group Partners, LLC presented their views on their outlook for the US property markets.
Bridge were represented by Mr Dan Stanger, founder and Chief Investment Officer for Bridge, and CEO Mr Don Hartman.
Mr Stanger explained how shifts in societal preferences, driven by desire for flexibility and mobility, amongst a number of cohorts, particularly baby boomer retirees, has led to a strong increase in demand for residential rental accommodation. This has led to an increase in national US multifamily occupancy rates to circa 96%, and annualised rental growth of 96% per annum.
These trends have certainly helped Bridge’s 2012 vintage ROC II Fund generate its 29% IRR to date, which has made it the number 1 fund in its per group according to Preqin, – a private equity performance analysis firm. Australian investors have enjoyed access to this strategy and the ROC II portfolio’s returns via Spire USA ROC II Fund.
This “shift to rental” is evidenced by the decline in US homeownership since 2008 from 70% of the US population, to 63% now. Each 1% decline results in 1.5 million households moving from home ownership to rental.
At the same time, new US household formations, driven by immigration and millennials finally “leaving the nest” post GFC, has rebounded to a further 1.5 million households per year. New households are predominantly a renter cohort.
Since the GFC, single family production (red line on graph below), which again on an upward trend, is far short of historical averages, due to Basel III and the resultant unwillingness of US banks to lend to small and medium size homebuilders.
In Mr Stanger’s opinion, strong new household formation in the US (yellow line below) will significantly exceed the aggregate of both new single family housing and multifamily housing production (green line) for all of the above reasons and thus comfortably absorb new multifamily supply (blue line).
At the same time, the US commercial office market, which are now in an “opportunistic” cycle, will present attractive value-add investment opportunities in certain tier two cities with employment growth.
Australian investors will be able to access value-add US multifamily and commercial office investments via Spire USA ROC III Fund which will be available via PDS in mid October 2915.
Click below to download the full presentation.