US medical building investments likely to survive economic fallout

Ownership opportunities in stable income-producing buildings that generate consistent returns and aren’t affected by market sentiment.

RYK VAN NIEKERK: OrbVest is a global real estate company based in New York, which offers investors from around the world the opportunity to invest directly into US commercial properties and most notably in the medical sector, and I’m now speaking from New York with Martin Freeman, he is the company CEO.

Martin, thank you so much for joining me. The world is currently changing quite dramatically. In a previous podcast we discussed the OrbVest opportunity and you said investors could expect roughly an internal rate of return of between 12% and 13% per annum. Do you think that is still realistic in the current environment, which seems to be very very uncertain.

MARTIN FREEMAN: Ryk, thanks again for having me on your show. Just to correct something you said – 12% to 13%, I think that we would be disappointed [with]. We look to get between 12% and 17% on average on our investments regarding the environment at the moment.

Before we get talking about that, I would first like to acknowledge to all our South African investors and your listeners the tremendous strain that this pandemic is placing on them both personally and financially. And then regarding our returns in OrbVest, you know OrbVest really is a business that is here to help people and we are here to help people invest their hard earned money into these assets in the USA and earn great dividends.

And in terms of the returns, we believe that not only are they sustainable, we believe that they are recession-proof and, in fact, I think going forward there’s going to be even more opportunity in the USA. It’s an enormous market and there’s always buildings for sale. We don’t like to buy on market; we buy off-market opportunities.

RYK VAN NIEKERK: What does that mean?

MARTIN FREEMAN: It means that if you’re going to go and buy a medical office building, there’s two ways you can do it. You can go to the normal brokers in the open marketplace and you can all bid for the same asset and you’ll probably end up paying a very competitive price or overpaying, and we believe that you make your money when you acquire that asset.

So we, through our network, which is now going on six years in the United States, we’ve found these opportunities through our network. They are very intertwined with the healthcare practitioners and the medical industry in the areas and they found us these opportunities where, for example, someone has owned a building for 10 to 20 years [and] they want to now sell it.

They don’t want it to be publicly known among all their friends, how much they’re selling it for and how much money they made and they’ll generally want to do a discreet off-market transaction.

And that’s the reason why we are able to acquire these assets. We also, in six years, have never missed a closing and we have never let anyone down in the US. Hence we have a very strong reputation on the ground in the USA.

RYK VAN NIEKERK: Many investors would look at an opportunity like this, but they would like to see historic performance. Is that available?

MARTIN FREEMAN: Absolutely. So in particular last year we sold two portfolios. Those portfolios were [valued at] approximately $34 million. [They] comprised 11 buildings, and we certainly have the track record. We also have clients, don’t forget not only from southern Africa, but from over 10 countries in the world now that have been investing with us for a heck of a long time. We certainly have referrals we can put people on to.

And the difference with OrbVest is we’re not looking to shoot the lights out.

I know for people in South Africa, they would say 8% in dollars and 12-17% [in rands] is an amazing return. It is, but there are a lot of people who are achieving that and there are a lot of other asset classes that may even produce higher returns. We don’t. We target stable income-producing buildings that are going to generate the consistent returns, not only now but for the next five years until we sell it and so we are very comfortable in the asset class we’re in.

RYK VAN NIEKERK: How would you describe the risk profile of OrbVest?

MARTIN FREEMAN: In terms of the risk profile, the difference between us and for example a Reit [real estate investment trust] is that with OrbVest we are the company that is already sourcing and managing and making sure people’s money is safe versus in a Reit, where what you’re doing is you’re really going into a pooled investment and you are basing your investment on the sentiment on the stock market and hence you’ve seen the mess of fluctuations up and down.

So the risk profile of Reits: number one, from a company perspective, you really are playing against the sentiment of the global market in terms of the actual investments in a Reit. You are relying on the investment team to decide what they’re going to invest in versus, one of the things in OrbVest is we allow everyone to pick and choose. So not everyone wants the same building. You might like Texas, I might like Atlanta, Georgia. You might like a stable single-asset tenant, someone else might like a multi-tenanted building. Hence every person can really invest according to whatever risk they want to take.

All our buildings are stable and reliable. We don’t take risk.

None of the buildings are going to have any kind of risk whereby … they’re not producing a profit on day one. So I would consider all our investments very, very low risk. And specifically, if anyone’s looking to invest money right now, I believe that it’s low[er] risk than most other options in the market at present.

RYK VAN NIEKERK: Would it not be less risky, even if the risk currently is low, to group a few properties into one investment? Because I think the big risk factor is a tenant moving out and you can’t fill the space again [or] the sustainable rental income. Wouldn’t it make sense to have three or four or five properties in one investment opportunity?

MARTIN FREEMAN: Ryk you’re absolutely right that in certain circumstances people do want to diversify internally in a pooled investment. Hence the reason Reits exist, both listed and unlisted. We at OrbVest have always allowed people the opportunity to invest directly into the building, which itself is a low risk. Because remember, if you’ve got nine or 10 tenants and one of them moves out, the starting point is that all those tenants have got very long leases, so even if one moved out it’s a very small portion of the building and hence our partners and our managing agents will just simply be able to, in the community, find someone to replace their work because healthcare is a very large, strong growing part of the US economy.

Regarding our investments versus a pooled investment, is there a likelihood that down the line OrbVest will also offer a fund, as it’s known? There is a strong likelihood because certainly as we go to large institutions around the world, they are saying to us, we don’t mind giving you $10, $20, $50 million you invested on our behalf, but we’re not going to do building by building, we would rather you diversify the risk for us. But again it comes down to one thing: you’ve got to have a team that is really a superb team, a trustworthy team, and a team that, you know, has a track record.

We are now, six years going on. Next year will be our seventh year. And so that’s the time now where we feel there’s enough trust in the market that we feel comfortable to go to the next step if we decide to.

RYK VAN NIEKERK: Martin, thank you so much for your time. That was Martin Freeman. He is the chief executive officer of OrbVest.

Brought to you by OrbVest.

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