ALTO 2 real-estate fund makes first purchase

The fund purchased a commercial center in California valued at NIS 165 million.

Commercial center. (photo credit: Courtesy)
Commercial center.
(photo credit: Courtesy)
This month, ALTO FUND 1 wrapped up its investment phase. In parallel, ALTO's first fund finalized the sale of an asset located on Fulton St. at the heart of the Financial District in downtown Manhattan, last December.
Meanwhile, ALTO is continuing the funding drive of $100 million for its second fund. In the initial round –$33 million in capital was raised during the debut of the new fund in January, with the next round planned to close in April. Recently, ALTO's second fund (jointly with ALTO FUND 1) completed its first transaction, acquiring a 300,000 SF shopping center located in Moreno Valley in California (55 miles east of Los Angeles).
Constructed in 1989, the asset is located on a main traffic artery with 126,000 vehicles passing by daily. Occupancy is currently at 91%, which also includes these outstanding anchors: TJ Maxx and Dollar Tree (two giant retail chains with thousands of storefronts throughout the U.S.), AT&T, Chipotle, Chase Bank, ULTA, Time Warner Cable, Wells Fargo Bank, and more.
Purchase price of the asset was NIS 165 million utilizing NIS 53 million of equity. Financing the purchase was a NIS 112 million loan (approx. 68% of transaction cost) from Deutsche Bank, at a fixed interest rate of 4.55%.
The enhancement strategy for the property entails increasing the rents for current tenants who are paying less than accepted market rates due to the departure of two significant tenants during 2008-2009 resulted in cash flow problems for the property, and as a result the rent income from the asset today is 25% lower than typical for this market.
“The purchase of a property in a prime location with a price of under $160 per sq. ft. is 40% lower than build a new asset from scratch (“replacement cost”) and combined with the upside potential through rent increases, together with additional tenants signing up at attractive prices, in our opinion affords an opportunity with optimal risk-reward prospects. “, states ALTO’s Founder&CEO Yaniv Melamud.
ALTO operates from offices located in Rockefeller Center in New York and Tel Aviv, and has so far invested in 15 commercial properties at an aggregate value of US$330 million and comprising some 2.1 million SF of floor space.
In recent years, ALTO has accomplished six exits, producing an annual yield of 36% (Net IRR).
This second fund is an American Real-Estate investment vehicle, registered in Delaware, and focuses on value added commercial properties in major cities in the U.S. “The new investment fund is aimed at providing the individual investor with the ability to emulate large institutional in Israel and abroad, by diversifying their portfolio with realty.
These investors will enjoy access to revenue generating assets which comprise a fundamental anchor of the investment portfolio, in addition to enjoying geographic and currency diversity, while leveraging current opportunities in the American real-estate market.”, adds Melamud. “The ongoing recession in the U.S. is opportune for acquiring valuable assets, particularly in ancillary (second tier) cities, where the prices are still attractive due to the protracted delay in ending the current recession”.
According to the terms of the fund, capital will be demanded only for implemented investments, and with management fees drawn only upon purchase of properties (not on commitments to invest). The fund will distribute yields on a biannual basis, and when executing a sale, the profits will be issued to investors immediately.
At present, ALTO FUND 2 is investigating three other commercial real-estate deals in Miami, New Jersey and Philadelphia. ALTO project that the transactions will be concluded within the next two months.