Alto near closure point with new income property investment

In contrast to companies that focus on the residential market, Alto prefers to focus on the world of commercial real estate.

By NADAV SHEMER
April 10, 2012 23:42
3 minute read.
Alto Private Investments properties

Alto Private Investments properties 370. (photo credit: Alto)

 
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Alto Private Investments, an Israeli firm that promotes investment in offshore income properties as an alternative to capital markets, expects to close its new fund in May with a volume of NIS 100 million, The Jerusalem Post has learned.

The fund, which is being sourced from private Israeli investors who each contribute at least NIS 1m., made its first closure in February to the tune of NIS 10m. Some 30 investors have already committed to the fund. Its total asset value is expected to be about NIS 400m. upon final closure, if bank leverage and local partner contributions reach the forecast 65 percent.

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Alto’s concept was born out of the 2008 global financial crisis, but remains relevant given ongoing global economic troubles, founder and chairman Mody Kidon told the Post. He said high-earning Israelis understood the need to withdraw their money from the capital markets and invest it in real estate, but often went down the path of investing in a limited number of properties rather than spreading their risk.

This is where Alto stepped in, according to Kidon, offering a way for institutional investors to spread their risk across a range of income-producing real estate in the United States and Western Europe. He said these investments create a constant and predictable cash flow – as opposed to real estate development transactions – making them ideal for those who seek to minimize risk and enjoy a relatively high current yield.

The new fund intends to invest in five properties in the coming year, having already acquired its first two: 40% of a retail complex located midway along Manhattan’s Fulton Street, about 400 meters from the new World Trade Center; and 65% of a commercial property on the main pedestrian shopping street in the western German city of Gelsenkirchen.

As with its previous funds, every transaction is carried out with local partners. Alto’s fund managers and the local partners invest approximately 50% of the total investments from their own money, ensuring a total match of interests between investors and investment managers. According to the terms of the fund, money calls from investors will only be made when making an investment and management fees will be only collected on assets that are actually acquired.

Kidon, a former Israel Air Force pilot who also works as business manager of the Gitam/BBDO Group, said previous experience around the world indicates that investment in income-yielding real estate has a low correlation with fluctuating financial markets.



Alto has invested about NIS 260m. in eight properties since its inception, with ownership divided among some 100 separate private investors. It made its first exit in July 2011, realizing its rights on a Chicago property that gave an average annual internal rate (IRR) of return of 20%. It realized an additional property in West Virginia three months later, resulting in an average annual IRR of about 18%.

CEO Yaniv Melamud told the Post that Alto chose to invest in the US and Western Europe because of the high stability of those markets. “We believe in the financial stability of these countries, which are proving their robustness even in these turbulent times,” he said. “We estimate that with the improvement in the global economy, it will be possible to sell the fund’s assets with very attractive profits for our investors.”

In contrast to companies that focus on the residential market, Alto prefers to focus on the world of commercial real estate, Melamud said. He explained that it is far more worthwhile to lease properties to companies like leading American drug retail chain Walgreens for a rental period of 25 years than it is to deal with the coming and goings of short-term tenants.

“When it comes to commercial real estate abroad, all responsibility for the upkeep of the asset lies with the tenant,” Melamud said. “Residential real estate investment is very dependent on the situation in the region and on its future development, not to mention the quality level of the apartments themselves. Any change in unemployment levels immediately affects the local housing market.

“On the other hand, when it comes to commercial real estate leased to strong companies for the long term, everything is known in advance. We are talking about transactions with the lowest risk and yields that are even higher than those in the rental market,” he added.

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