Rundown U.S. Homes Draw Aussie Fund on Returns Quest

Mortgage & Real Estate









The first listed Australian landlord of U.S. housing is hunting for rundown properties in the New York City area as prices hit new highs.

The U.S. Masters Residential Property Fund owns A$545 million ($453 million) of single-family and multifamily properties in the New York metropolitan area, including in Brooklyn, New Jersey and Harlem, said Alan Dixon, chief executive officer of Sydney-based investment firm Dixon Advisory, which manages the fund. It only buys properties located less than an hour by public transport from Midtown Manhattan, he said.

“New records are being created on a regular basis” in many neighborhoods, Dixon said in an interview in Sydney. “But product thats still in need of substantial renovation is still quite affordable.”

The U.S. subprime crisis that reduced home prices by 34% from a 2006 peak drew investors such as Blackstone Group LP. The New York-based firm purchased foreclosed single-family houses to rent out, and has spent more than $8 billion buying and renovating properties to become the biggest single-family rental-home landlord in the U.S.

Brooklyn and Manhattan are two of the three least affordable housing markets in the U.S., according to RealtyTrac Inc., as prices surge on investor and foreign buyer demand. Rents are climbing as many residents remain unable to buy properties, and banks reluctance to fund purchases of fixer-uppers offers institutions a niche thats inaccessible to individual buyers.

The U.S. Masters Residential Property Fund’s shares have jumped 34% since listing in June 2011. The benchmark SP/ASX 200 index has gained 17.5% during the same period.

As the fund buys more rundown homes, the construction phase of renovations now takes as long as 32 weeks, from six weeks two years ago, Dixon said in the interview.

Dixon Advisory created the U.S. Masters Residential Property Fund to cater to demand from Australians managing their own pension funds, he said. The firm has about 4,500 such clients with more than A$5 billion in assets, according to its website.

The value of assets managed by so-called self-managed super funds will quadruple to A$2.2 trillion by 2030, according to a June estimate from the Australian arm of consultants Deloitte Touche Tohmatsu Ltd.

The company’s debt is expected to jump to 43% of assets, from 29% now, after an Australian notes issuance in progress to raise as much as A$150 million to fund renovations, Dixon said.

While the fund has so far only raised capital in Australia, its not averse to turning to the U.S. market, particularly if the Australian dollar continues to weaken, he said. The Aussie buys about 83 U.S. cents.

“We were very fortuitous in asking our investors to invest in the U.S.” when $1 equaled A$1.03, Dixon said. “It will be interesting to see whether the recent decline affects appetite for shares” in Australia.

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