The impact of Covid-19 on investments

What other options are available globally?

RYK VAN NIEKERK: We continue our discussion with Martin Freeman, the CEO of OrbVest. OrbVest is a global real estate company based in New York, which offers investors the opportunity to invest directly into US commercial properties predominantly in the medical sector. Martin is on the line from New York. Martin, thank you so much for joining me.

Virtually all countries around the world are facing poor economic prospects due to the significantly reduced economic activity we are seeing and many countries will also face protracted and deep recessions. This, of course, may have a major impact on investment strategies and actual investments. You’ve mentioned before that investing in healthcare real estate is recession-proof. How is your real estate portfolio in the United States performing at the moment?

MARTIN FREEMAN: Firstly, morning Ryk and thanks for having me on your show again and all the best to your listeners from New York. You are correct. We’ve been saying for years now, that if and when a recession arrives, you’ll want to be invested in healthcare real estate, especially in the United States and the reason for that is quite simple. It’s stability, it’s resilience, and we are very confident that this asset class will hold up a lot better than most asset classes probably in the world. By way of example, during April, we collected 95.3% of our usual collections versus a typical month like March, which is amazing. Given the Coronavirus pandemic and the way that other asset classes like retail, commercial and residential are being impacted, we can certainly see that the strategy is holding up very well. And lastly, we do expect a further dip in May that’ll move to levels of around 92%, but then we do expect a strong rebound in June as the US economy starts to open up.

I think it’s also important to note that in the healthcare space, even [in the case of] the small tenants who ask for a slight deferral … it’s not a payment holiday. It just means they may ask for a deferral and then they’ll pay off the arrears between July and December. Medical in the United States is deemed an essential service, so most of our facilities will always remain open.

RYK VAN NIEKERK: How big is your portfolio at the moment?

MARTIN FREEMAN: The portfolio is now grown to over $300 million, and we are adding a further $150 million to $200 million per annum. So it really is growing consistently over time.

RYK VAN NIEKERK: And the properties are predominantly medical properties – properties only used by medical practitioners, laboratories, and the like. How many of those properties are there in the market you are targeting?

MARTIN FREEMAN: In the US alone, it’s an enormous market. It is over $1 trillion – that is just the real estate market of healthcare. There are over 36 000 properties that certainly fit our niche, and so it is an enormous industry.

So if you look at the number of buildings that we have and we try and acquire, it’s very small in relation to the target market that we’re in, which is also just growing consistently given the ageing population in the United States.

RYK VAN NIEKERK: So I assume you are very selective in the properties you choose to acquire and to syndicate. How many properties are there in this $300 million portfolio?

MARTIN FREEMAN: We have acquired, to date, 26 buildings. We have also exited a number of buildings last year, so we’ve completed the full cycle. By way of example, when we exited those buildings, we generated on the one portfolio 13.3% overall returns in dollars per annum to our investors and so we are now moving onto medical 27.

RYK VAN NIEKERK: So you’ve had 26 properties, you have also disposed of a few. What is the investment horizon for a specific property? And I’m asking this question because investors invest directly into individual properties. So what is the investment horizon for such an investment?

MARTIN FREEMAN: Every single building that we acquire is a separate building. You don’t go into a fund; it’s not pooled funds at this stage. The reason why we believe so strongly in this is that there needs to be transparency and the ease [with] which people can pick and choose ‘do you want to go into this state’ or ‘do you want to go into this particular building’?

Each of these buildings has the following criteria: they are safe, stable income-producing on day one. That’s the first thing, the second thing is we will always target returns of about 8% cash dividends to these investors and total returns of 11% to 17% per annum – that’s in dollars by the way. And these buildings are always held for five years, and then we exit them after five years.

So you enjoy your cash dividends along the way of around 8% per annum paid out quarterly, and then you also get a capital gain when we sell the building, which then brings you to these overall returns when we sell it in year five.

RYK VAN NIEKERK: You also earlier said that you plan to expand the portfolio by between $150 million and $200 million per annum. How many properties does that represent?

MARTIN FREEMAN: We basically envisage that at this stage right now we’re doing about five buildings per annum. We see this moving up to basically a building every second month, if not even more. And the reason why is because don’t forget that we raise equity from over ten countries internationally. We’re a global company now and so as we continue to grow and raise more and more money, all of our properties are now being oversubscribed every time we launch it. And so we will continue to acquire selective properties in the right areas. We’re not going to do a deal for the sake of doing a deal.

The one thing that is very encouraging for us at the moment is that the coronavirus pandemic has brought a lot of deals to the market. There are great opportunities in the US now and so we certainly are excited about our pipeline of deals going forward. Bearing in mind if you then spread it across all the different states and you’re doing even eight or ten deals a year across all the states, across all our partners, it’s a very small number relative to the market.

RYK VAN NIEKERK: What is happening with the valuations of those properties, because the property sector around the world is under immense pressure? Are you seeing slightly declining valuations of those properties in the portfolio and those you may look to acquire?

MARTIN FREEMAN: In our portfolio, we have not seen any decline. In fact, there are people looking to purchase [one of our buildings right now] from us at an inflated price. The reason why is that money in the world is now trying to seek a safe haven. And so what happens is that it is moving towards healthcare, given its resilience, its stability, long leases, profitable tenants. So off the back of that, our portfolio certainly is very resilient.

Also in the United States, people purchase properties based on the net operating income. So if your income is staying the same or it is increasing, the value of your building will go up. That’s notwithstanding the fact that some people have geared themselves too heavily in the United States or they just need to offload their properties given the fact that they’ve held him for a long period of time. So there’s always movement in the United States; there’s always opportunity. And what we do is we help people around the world invest and become real estate owners and landlords in the United States in a very seamless manner.

Encompass Health Rehabilitation Hospital of Richardson

RYK VAN NIEKERK: How would an investor go about investing in one of those properties?

MARTIN FREEMAN: So it’s very simple. You simply go onto, go to our investment tab. You then have a look around the site, you register. One of our client relationship individuals will contact you, we’ll take you through the process. But I assure you this: anybody looking to get into real estate within literally five to seven days, even from as little as $5 000 you can be an owner of real estate in the United States.

RYK VAN NIEKERK: Are there not a few pink, yellow and blue forms a South African investor needs to complete due to exchange controls and the like?

MARTIN FREEMAN: So unfortunately there are forms for every investor around the world. You know when you deal in any kind of monetary transactions at the moment, there’s always regulation, KYC (know your customer), Fica, etc. But we’re very skilled at that. That’s what we do. We have thousands of people around the world. We look after them, we hold their hand, we make it simple. And that’s the beauty of it: we as South Africans understand what other South Africans need and we take care of that.

RYK VAN NIEKERK: You said the portfolio is valued at around US$300 million. How quickly did you get there?

MARTIN FREEMAN: So we’ve been doing this in the United States for six years now, and so we’ve built up a stellar track record. It’s been slow measured growth. We are not intending to shoot the lights out, bearing in mind the kind of growth we’re talking about is just consistent, slow, sustained growth.

What’s happening is that as our track record continues to build, so people are hearing about us in the world and they’re approaching us. It’s becoming easier and easier to open up countries all over the place. I mean as an example, someone through my network found me from Costa Rica of all places, two weeks ago. They love what we do and they want to now start to invest in the United States. So we fill a very unique niche in a sector that is resilient and there aren’t any other players that we’re aware of that are doing specifically international investing into the United States in the healthcare niche only. And we believe that the reason why it’s such a good value proposition is that we don’t want to shoot the lights out for investors internationally. We just want to give them good stable dividends that they can build annuity and build their wealth. And we understand that because we ourselves are all from outside of the United States originally.

RYK VAN NIEKERK: But you are growing very fast at the moment. If you can grow the portfolio by between $150 million and $200 million, that would equate to annual growth of 50% to close to 70%. How do you manage that growth?

MARTIN FREEMAN: So if you think about it from a South African perspective when you mentioned the numbers, it certainly is in the billions of rands. But if you take a typical property, which let’s call it $15 million, and you do it on two-thirds debt, one-third equity, which would mean $10 million debt and $5 million equity, at the raw essence of it, it’s 50 people each investing a $100 000, for example. So in terms of that, we have an entire team that manages everything cradle to grave: meaning we onboard people, we have a sophisticated platform, we’re able to manage the process all the way through. We’ve done this for six years and it is just about scale.

And so if you’re doing your six, seven, eight buildings per annum and you have enough people to manage each building and to manage the portfolio, I think it is completely sustainable. The only thing that then changes is the size of the transaction, because instead of doing $15 million buildings, you then start to do $20 million or $30 million buildings, which in fact have even more tenants in the building and are even more resilient.

RYK VAN NIEKERK: What is the minimum investment?

MARTIN FREEMAN: Investors can invest from as little as $5 000 – now that’s not to say that that’s our average, but that’s what they invest from…. A lot of South Africans, we remain quite sceptical of handing our money over to people overseas. We encourage people to take time, see what we’re about, invest whatever they feel comfortable with. Over time as they become comfortable and they get their quarterly dividends, they invest more and more. And most importantly also at all times we try and encourage investors to spread the amount over, call it initially three to five investments and then over time build it up to eight or ten so you end up with a portfolio that is a healthcare portfolio in the United States that is very stable.

RYK VAN NIEKERK: You said you are aiming for an 8% annual dividend paid quarterly. How is that dividend paid? In rands or are there other options like to reinvest?

MARTIN FREEMAN: All our dividends and all our transactions are in US dollars. We are listed in the Seychelles. People have various mechanisms to move their money out, through South Africa and through various other players and our partners like Sable [International]. And then what happens is it gets invested into the real estate deal itself. Money flows back to investors globally as US dollars and dividends. And then what happens is people have the following options: they can either bring it back into their country and declare it, which they should as a dividend, or alternatively they can reinvest it directly into one of our other properties, which a large percentage actually do – so they utilise the concept of compound into exponential growth.

RYK VAN NIEKERK: This is a very interesting model. You’ve also grown significantly in the first six years, but where do you see OrbVest in 10 to 15 years? What are your long-term goals?

MARTIN FREEMAN: So we’ve got three primary goals at OrbVest. The first is that we would like to continue to grow the portfolio and over the coming years we foresee that getting to a minimum of a $1 billion. The second is that we obviously are building a legacy of helping thousands of people around the world and we’d like to see that continually growing. [In] both of those two that I’ve just mentioned now, we are well ahead of our track record that we set out for ourselves a few years ago. And off the back of that, we would then like to set ourselves a goal of listing on the NASDAQ by 2025.

RYK VAN NIEKERK: Martin, thank you so much for your time today and good luck with the challenges Covid-19 brings.

MARTIN FREEMAN: Thank you so much, and to all South Africans the same. Thanks, Ryk.

RYK VAN NIEKERK: That was Martin Freeman, the CEO of OrbVest.

Brought to you by OrbVest.



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