Stonehage, the Mayfair multi-family office, is taking a broad view of the market, announcing they have allocated 8-10 per cent of portfolios to US real estate
The US property market is diverse, to say the least: there are houses in Detroit on sale for $100 and TriBeCa mansions in Manhattan for $50 million (example pictured left).
Stonehage, the Mayfair multi-family office, is in fact taking a broad view of the market, announcing they have allocated 8-10 per cent of portfolios to the asset class. This is surprising given most portfolios managed in London have an exposure closer to zero.
There is sound economics behind the choice: inventory lags behind demand. And, as Kirsten Boldarin, director at Stonehage Investment Partners, says, it’s not like prices can get any lower: ‘For a permanent loss of capital, a further very severe decline in US house prices was needed.’
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Returns in 2012 were excellent for Stonehage’s clients, hitting 40 per cent, and as John Veale, CIO, says, although the second allocation is still deploying capital, return expectations are an annualised 10-12 per cent.
Read more on property from Spear’s
Few UHNWs, of course, have direct exposure to US real estate due to the tax implications, but most invest via debt markets and, specifically, mortgage-backed securities.
There are no guarantees in investment, but UHNWs reliving 2008 nightmares should remember that the deterioration of the US housing market then was a result of excessive leverage and mistaken price expectations, whereas today leverage has declined and house prices have rebased.
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‘For our most recent allocation,’ Veale continues, ‘the investments are mainly concentrated in what we term tier-two areas. For example, the second of the funds has invested in commercial buildings in Las Vegas and Illinois as well as a portfolio of residential mortgages from a regional US bank.’
Let’s hope for Stonehage’s clients these produce tier one returns.
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