Investment Funds: Enter the US Real Estate Market

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Seeing the possibility of taking the leap, Luz Eugenia and Juan Manuel began an adventure that has become an experience to rebuild an investment portfolio always managed with traditional options.

It is not enough to have an investor vocation to decide at some point to bet on an asset abroad. The decision involves not only aspiring to a justifiable return, but also managing to identify the various risks, knowing the managing partner, as well as the legal and tax implications

That is what Luz Eugenia Mejía and Juan Manuel Restrepo* did, with the intention of diversifying their investments and exploring opportunities as a family. They started from scratch, in the sense of not having previously made any financial move outside the country, but having had experience with various assets and investment instruments, both fixed income and variable income in the national market.

After consulting in Medellín, reviewing different sources of information and even going to see on the ground the multifamily project in which they were interested in investing, this couple of architects joined Century Real Estate Fund, a vehicle created by Century Asset Management to develop a complex in Doral, Miami Dade, one of the areas with the greatest real estate dynamism in the southern United States.

“We looked for it at the time when we felt that we had to diversify the investment abroad,” explains Luz Eugenia, for whom “it was a surprise” to find that from Colombia they could have an investment abroad, completely legal and an offer for the Diversified investment management, with high profitability. “Good profitability and in dollars,” notes Juan Manuel, her husband.

The multifamily model in the United States has nearly 90 years of history and consists of the development of a real estate complex that mixes housing, commerce and services. Contrary to what traditionally happens in Colombia, it is not oriented towards unit sales, but rather towards rental placement. In this case, a manager conceives the project and through a fund invites investors who put up capital and become partners in exchange for a projected profitability.

From the perspective of the business opportunity for an investor, Alejandro Villegas, financial vice president of Conconcreto, highlights that the first reason why a future investor may consider entering a real estate fund is the opportunity to diversify their income.

“Usually to get into a real estate business in the United States, with a professional manager, one needs a very large check,” he clarifies, explaining that in this particular project the opportunity is being given to people who with $100,000 can Invest in a real estate project in the United States with the help of a professional manager.

After a year and a half of having entered the business, husband and wife Mejía and Restrepo express not only tranquility for the decision made, but also confidence in a medium-term investment, managed by a company specialized in the La Florida market, which they see Good prospects.

“One is surprised by the growth of that State and to know that the economy of the United States has had difficult times, since the heritage is in a State that always offers opportunities for growth and the behavior is very different from what the property is root of the country in general: that is, even if there is a difficult moment in the American economy, Florida gives security and tranquility,” says Luz Eugenia, supported by what she has learned about the growing Latin American migration, which represents tourism and presence of so many companies.

And the real estate dynamic in Florida is so relevant that Miami is already considered the fifth largest metropolitan market in the United States. All of this, among other reasons, is precisely due to the gradual increase in population, according to the real estate advisory firm, Zillow.

This reinforces the reasons why Juan Manuel recognizes that they are “quite happy” with the step taken. In reference to the project, he defines it as very well prepared, with very high quality standards, with a modern form of construction, and high technology.

Luz Eugenia and Juan Manuel also highlight favorable factors for the efficiency and profitability of the multifamily project, such as the optimization of resources, precise planning, designs that aim to save on materials, impeccable logistics, with zero waste and disciplined personnel who comply with the rules. “We are really working on productivity and construction times,” says Luz Eugenia Mejía.

For her, the main reason why they opted for this bet that has them optimistic, was to be able to see a clear objective: “backed by a strong currency (the dollar), with a good return, a well-managed project, with a projection not only in construction and development but also in profitability”, because as Juan Manuel complements, “the variable income issue in Colombia began to become too risky and the Colombian currency, too. We were looking for something that was more secure; “You know that with variable income you have many more profits, that if you go to another type of investment the profitability is penalized, but I really believe that here we find an intermediate with very good levels of performance and in a very safe currency.”

Multifamily, winning scheme

The development firm Century Asset Management, established in 2021 by Century Homebuilders and Conconcreto, defined the investment horizon of this multifamily fund at eight years and the estimated profitability between 13 and 15% effective annually. And that the 56 investors who, like Luz Eugenia and Juan Manuel, have entered the project so far, will soon begin to receive income through the income generated by the leases. Once the eight-year period has expired, when the project is sold, they will receive another income to complete capital and return.

Now that the world is witnessing shorter global economic cycles, with a sequence of more frequent crises throughout the century, the financial vice president of Conconcreto highlights that multifamily projects are usually sold in the United States as a type of countercyclical asset, since to the extent that the economy is down and interest rates are high, people look to rent instead of buy and that ends up mitigating the downward cycle against the asset and the capacity to generate cash.

Furthermore, history teaches that “when cycles hit these types of assets, they tend to react much faster than the rest of the market and the rest of the assets”, a capacity that is due to the characteristic of the asset and the reality of the market, more In Florida: people always need to rent and inventory is limited.

After more than 20 years of being used to transforming savings into investment through the stock market and, after recognizing that before there were more certainties and now everything is so unstable, the Mejía Restrepo couple are clear that they have come to the right place, and They report that they were not satisfied with making a case, but also decided to increase the bet. They only went through one big doubt, Luz Eugenia acknowledges: how do you get the money out of the country so as not to have problems? But that was resolved satisfactorily because they always had legal advice from Century Asset Management.

If you are interested in learning more about this investment model, click here.

Today, this couple is sure that when the time comes to liquidate their first investment in the United States, they will have concluded a story that was worth writing: that of diversifying the portfolio in type of asset, geography and currency, through a fund established to finance a multifamily project, with 735 apartments where between 1,500 and 2,000 people will live; and with 56,000 square feet of commercial space.

The financial vice president of Conconcreto emphasized that the fund led by Century Asset Management turns out to be a very interesting asset for investors from the point of view of cost, since they are purchasing in a complex in which each apartment is worth about $365,000.

“Today, in an environment of high interest rates and high capitalization rates, those types of units are selling for around $450,000 to $480,000. They are entering at cost, into a project that has a significant valuation and this is because the lots were purchased about three years ago, the construction was contracted two years ago and the debt was contracted one or two years ago,” he stated.

And the third determining factor is that “although it is a business that has real estate and rental risk,” it is based on a conservative financial model, where it can be expected that the professional manager, to the extent that he has refinancing and sales windows, deliver a better return to the investor than expected.

Precisely, in reference to the risks and how Century Asset Management addresses them, the manager explained that the project has three significant ones: the development risk: buying the land, obtaining permits and building. In this case, the land is purchased, the permits obtained and half of the asset built, “then the risk that remains for the investor is the construction of the second half of the asset; It is a somewhat mitigated risk.”

There is also the risk of financing, which is getting the credit, and half of it has been financed and the rest remains to be obtained, which is expected to close in May or June of this year. And the third risk is market risk: ensuring that the apartments and premises are rented at the expected prices.

“We were relatively conservative in the financial modeling of what the project flow will be, we modeled with rents below those we are finding in the market and already leasing the units; and we are modeling the final sale of the asset at a conservative capitalization rate, a little above the market, so as not to subject the profitability to a very large uncertainty and see that I will sell at the best price in eight years. That will be a benefit if it is achieved.”

It is worth noting that in Colombia there is no comparable opportunity, since the multifamily market is yet to develop. However, to have a reference, Alejandro Villegas stated that the expected return of 14% may be equivalent in pesos to one of 18%, “which is very good compared to what other real estate funds offer in Colombia, which do not do multifamily, “But they make warehouses, offices.”

It is no less important to indicate that, just as Luz Eugenia and Juan Manuel found physical proximity to the Century Asset Management advisors in Medellín as a factor of trust, there is also that possibility in Bogotá for those who find the possibility of entering this real estate portfolio interesting. in the United States, managed by a company supported by two partners with knowledge and experience of the South Florida market, where the flow of migrants from other areas of the United States, Europe and Latin America is growing, which has caused the demand for housing to grow constantly.

fondos de inversion news

This is somewhat confirmed by ZillowGroup in its 2024 Rental Housing Market Outlook report, which found that the average household in the country needed to spend 29.5% of their income on rent in November 2023, data which before the pandemic was 28%. In Miami the required is 43% and in New York 39.7%.

If you are interested in diversifying your investment portfolio and learning more about this model, contact Century by clicking here.


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