RYK VAN NIEKERK: OrbVest is a global real estate company. It is based in New York and offers investors a chance to invest in US commercial property and especially in the medical sector. Martin Freeman is the CEO of OrbVest and he is on the line. He is in New York. Martin, thank you so much for joining me. The world currently is in turmoil and economies around the world will go into recession. I think that is pretty much a done deal. How do you think would OrbVest investments react to economies going into recession, and especially the US economy going into recession?
MARTIN FREEMAN: Ryk, thanks for having me on your show. So the first thing again is I just want to say to everyone that it’s heartbreaking what’s happening with the global economy with this pandemic. I can tell you now that I’ve got a lot of friends and family in South Africa and obviously our concerns go out to them. Regarding the US you know, the one thing that we are lucky is that they’ve got such a big powerful economy that they’re able to throw over $2 trillion into the economy.
Regarding our investments specifically and our medical office buildings, we as OrbVest have said for years that if a correction or recession comes, that the one stable safe-haven asset class that people will want is medical office buildings and healthcare-related assets. We stand by that viewpoint. It is deemed an essential service in the United States and most of our tenants are still active and practising and we don’t see them being shut down. An example of that is Life Lab in Medical 25 where in fact they are the first coronavirus testing lab for the state of Georgia.
So we, in fact, have seen a surge in activity and a lot of our buildings and so they are not as impacted as many of the other asset classes. Like for example, I’d be very concerned if I was in multi-family [residential housing complex or building] at the moment, or retail.
RYK VAN NIEKERK: I must appreciate that if there is a significant mobilisation of medical services in the US that that will actually channel more spending to that sector and that should augment and support the OrbVest investments.
MARTIN FREEMAN: Definitely and so far we’ve actually received tremendous positive news for our investments and the demand for our investments.
Don’t forget that it also is a positive aspect that the US has reduced its interest rates in the United States, which means a lot of these buildings, the mortgage costs we were paying will reduce so they will become not only cash-positive, which they were already, but more cash positive.
Then the second aspect is the fact that a lot of the buildings are now in greater demand since the coronavirus pandemic. We’ve actually subsequently received an offer on one of our buildings because people are wanting to invest their money into these safe, stable income-producing assets.
RYK VAN NIEKERK: Yeah, I can appreciate that too. There is increased spending into the sector [and this] will increase the value of those properties. You are currently buying properties in the sector. How do the evaluations currently look and what can investors expect as a yield?
MARTIN FREEMAN: So nothing’s changed at this particular time. We are still able to acquire assets that meet our objectives, which is 8% average cash on cash, meaning 8% per year on your money you invest. And then also the capital appreciation will take you to a total return of between 12 and 17% per annum over the five years, which is amazing if you consider the current state of flux in the world economy. And so we haven’t seen any impact right now, but I think certainly going forward we are well-positioned to take advantage of any potential movements in the economy in the US and in the sector. The one thing I just want to mention is that for people out there, your listeners, you know, where do you put your money right now? You can’t put it into the bank. You can’t put it into equities, you know? So we certainly are a very viable alternative with our six-year track record and helping thousands of South Africans do exactly what your listeners are wanting to do. Invest in something stable. It’s going to give them dollar dividends and they become an owner of real estate in the United States.
RYK VAN NIEKERK: How many OrbVest investments are in the pipeline?
MARTIN FREEMAN: So we at the moment are acquiring a building every two months and what it translates to is we will do a minimum of six acquisitions per annum. We are going to be launching Medical 27 in the coming weeks and by the end of the year, we’ll be over Medical 30. And while it sounds like a lot, it’s actually not that much if you consider the fact that there are 50 states in the US – there’s an absolutely massive industry that is always buying and selling every five years. So we are able, through our partners, to acquire from each partner, just one or two investments in the year. And so that’s what drives our growth.
RYK VAN NIEKERK: How much funding do you need to acquire one of those properties?
MARTIN FREEMAN: So our buildings generally are in the range of $12 million to $60 million. We acquire it on the basis of 65/35 debt to equity. What that means is, for example, if you buy a $12 million building, you’ll have $8 million of debt and $4 million of equity. What that means is from all our channels in the world we’ll raise the $4 million. It sounds like a lot of money from a South African rand perspective, certainly at the moment at nearly 18 to one [$/R]. But if you think about it, it’s 40 people in the world each putting in $100 000. Or, in our case, our average is $38 000 so it’s a lot more people. But remember at all times, people generally start to invest from us from $3 000 to $5 000 and then they increase the investment over time as they become more comfortable with who we are or relative to their own position.
RYK VAN NIEKERK: Martin, thank you so much for your time. That was Martin Freeman. He is the CEO of OrbVest.
Brought to you by OrbVest.