January 28, 2010
Henderson eyes US rental homes, raising US$400m
UK fund manager expects double-digit returns as home ownership slides
(LONDON) Henderson Global Investors is raising US$400 million to invest in rental apartments in the United States, where it sees potential for double-digit returns on the back of falling home ownership and cheap finance.
US home ownership has fallen dramatically in the past six years, in the latest boom-bust real estate cycle, and could fall further, meaning more people looking to rent, the UK-based fund manager said on Tuesday.
'We think the US apartment sector is best positioned for a recovery both in terms of fundamentals and financing,' Edward Pierzak, Henderson's chief property investment strategist for North America, said in an interview.
The home ownership rate dropped two percentage points from 69.5 per cent in early 2004 to about 67.5 per cent at end-2009, and could fall further to 66 per cent in the next two years, he said.
'You're really looking at two million households or so that could be entering the for-rent market, so it's a big plus for apartment owners,' Mr Pierzak said.
An improving investment market for apartments could benefit listed residential real estate investment trusts such as Equity Residential and AvalonBay Communities.
Henderson, which has £57.7 billion (S$131.4 billion) of assets under management, plans to launch its CASA V fund before end- March to acquire US apartments, and is targeting to raise US$400 million from US and international investors.
'We think there is an opportunity in core apartment markets that can give you returns in the 10-12 per cent range with modest leverage of about 50 per cent,' Mr Pierzak said.
Henderson is not looking at the Stuyvesant Town and Peter Cooper Village, however, due to the size of the project.
Tishman Speyer and a unit of BlackRock decided on Monday to give up control of the 11,200 apartment Stuyvesant Town complex in Manhattan, after a default on the debt used to finance their US$5.4 billion purchase of it.
'Conceptually apartments in New York would be what we're interested in, but likely not at that size,' Mr Pierzak said, adding the fund will look to buy apartment buildings at lot sizes in the US$20 million-US$60 million range.
Its favoured markets include coastal California, the Washington DC metro area, and south-east Florida.
The apartments sector also benefits from the cheapest financing available for real estate in the US. Some apartments that qualify for a tax-exempt bond financing could bring borrowing costs to as low as 3 per cent, Mr Pierzak said.
Other commercial real estate sectors such as offices, retail, and industrial properties are also starting to look attractive although their fundamentals remain weak, he said. 'You can get attractive cap rates on those properties, but you also have to recognise that vacancies as well as rental growth will be more challenged in the next couple of years.'
Martin Koh/ Sherry Tang