OverseasInvestments: A new property investment vehicle plans to raise equity of €37 million ($50 million) and target the commercial market in the US centred on Chicago. It believes that investment returns of at least 20 per cent per year are possible using its business model.
The managing director of Finnegan Menton, Iain Finnegan, is one of the principals behind Wilton US Commercial, along with his associate, Wil Byrne. They have established a new real estate investment trust that will provide Irish investors with a tax-efficient way to buy into the US property market, Finnegan said.
Wilton US Commercial has already raised €10.55 million ($15 million) and will push this up to €37 million ($50 million). With a gearing of 75 per cent, this should give the company purchasing power of up to €140.6 million ($200 million), Finnegan said, adding they were "delighted with the market response" to the plan.
Their business model is different from the conventional investment vehicle in that the company will not be going after "dry property investment" which allows the prevailing market deliver capital appreciation. "Our investment strategy is to acquire buildings which have reasonably high levels of vacancy and which we plan to turn around through active management which may entail refurbishment or even redevelopment and aggressive rental and occupancy growth," Finnegan said.
Wilton US Commercial will be represented on the ground by one of America's leading property firms, US Equities, which specialises in this area. "They turned around the 260,000sq m John Hancock Centre and now have just been awarded the management contract to revitalise Sears Tower, one of the tallest buildings in the world at 110 storeys and totalling 353,000sq m," Finnegan said.
The trust being established to carry the investments provides a tax-efficient way for Irish investors to buy property in the US either personally or through their self-administered pensions while only attracting a 20 per cent tax on their gains, Finnegan added. The founding member of US Equities, Camille Julmy, will sit on the board of directors of both the US trust and the Irish advisory company.
Finnegan said that the initial focus would be on Chicago. The company has already identified a potentially suitable building, a 30-storey modern office building in downtown Chicago two blocks from Michigan Avenue. The building, expected to achieve over €103.7 million ($140 million), comprises 61,316sq m (660,000sq ft) and is the headquarters of the American Medical Association (AMA) that occupies 65 per cent of the building. The AMA may seek to terminate its lease which would provide an opportunity to significantly add value to the building by upgrading the space and reletting it at a higher price while also securing a reverse premium from the AMA.
The Wilton US Commercial offering is due to close at the end of November 2007. Finnegan holds to his view that 20 per cent annual investment returns are possible despite the recent sub-prime lending crisis that has rocked banking on both sides of the Atlantic.
It has led to a correction in the commercial property market and has tightened credit facilities for property investors going forward. "We therefore feel that there is an excellent opportunity for equity-rich investors to buy first rate buildings at attractive prices and then drive considerable capital growth through active management," Finnegan said. "The current strength of the euro against the dollar also gives Irish investors a buying advantage."
