MARKHAM, IL / ACCESSWIRE / March 8, 2021 / Specialty Real Estate Investor- Acies Group- shares insights on preserving and growing your wealth while money supply has been ballooning.
- The U.S. money supply M1 - has grown 80% from $3.9 trillion in Jan 2020 to $6.8 trillion in Feb 2021.
- The 10- year U.S. treasury rate has been kept at quite a low level for a long time.
- Institutional Investors started looking hard into alternative assets to produce income, hedge inflation and grow capital.
- Specialty real estate investments in private markets could be the solution as it was under-appreciated and generally has a higher barrier to entry.
How much value of your savings is still holding today?
"Unprecedented times" is probably the most often-repeated phrase in 2020. The strike-on of the Pandemic is certainly unprecedented. However, what happened in the financial world is actually even more unprecedented.
In the past 13 months, while the size of our economy in the U.S. slightly shrank, the M1 money supply (cash and its equivalents) has increased by 80%. Then how much true value of your savings still holds today?
Meanwhile, as the virus surges and millions are unemployed, the stock market is ending 2020 at record highs. How could the stock market go up while the fundamentals of the economy go down? According to Deutsche Bank, 10-year Treasury yield plunged to its lowest in 234 years in July 2020. Will the interest rate one day even become negative?
What is the investment solution in such unprecedented times?
"In a market situation like this, if you have a lot of cash in hand, it almost melts away everyday. The traditional investing avenues - stock market, bond, or saving account can't provide risk-adjusted return as they used to," said Jingjing Zhang, a Harvard Business School graduate and chief investment officer of Acies Group, a Chicago-based specialty real estate investment firm, adding: "2021 would be a difficult year for investors. The yield from fixed-income products would stay low; the inflation is poised to raise its head while the U.S. maintains such a high leverage; and it would be very risky to continue betting S&P 500 would even go higher."
Such unprecedented situations ask for unprecedented solutions. "We definitely have seen institutional investors try to invest more in alternative assets in the past 6 months. Private real estate market, the area of our expertise, is on their "shopping list" said Ned Mahic, the chairman of Acies Group, who has had more than 20 years' experiences in real estate investment and development. He adds: "I have experienced the ups and downs of the financial market over the past 20 years. Whenever there is a high chance of extremely high or low interest rate, institutional investors go for private real estate for inflation hedging and generating income."
The return of real estate investment consists of two parts: regular rental income and capital gain at sale. The lease agreement is long term and contractual, which indicates the stable and predictable cash flow. Many investors rely on the rental income to cover their daily expenses. Real estate investment products can generate 5 to 10% or even higher dividends, meanwhile the stock market gives out only around 2% on average. In addition, there is a built-in annual rent increase ranging from 2-6% in most lease agreements; which serves as perfect inflation hedging. Compared to REITs listed in the public market, the private real estate market generally responds to market turbulence in a delayed fashion. Experienced private real estate investors would be able to weather the down cycle very well as long as they assume reasonable levels of leverage.
Specialty assets could still deliver an attractive return.
However, the private real estate market is huge. Where to look for investment opportunities is certainly a billion-dollar question. Just like in any industry, the higher the barrier to entry, the better profit margin due to limited competition. This is why many specialty real estate investments generate much better return. Like Acies Group, their investment portfolio in the past 5 years has delivered a compounded return in the upper 20% in addition to the average quarterly dividend pay-out which is slightly higher than 10%. "We achieve such excellent results mostly because we choose to focus on a niche market - industrial service facilities. These are mission-critical real estate to support E-commerce. And we are one of the few experts in North America," commented Arnold Kozys, the president of Acies Group. Mr. Kozys is a veteran in the logistics industry. He is a successful entrepreneur and single-handedly built up a mid-sized logistics company of $120 million in revenue from scratch in the past 20 years.
Very likely, this is the first time you heard the name - industrial service facilities. However, every delivery of your online order relies on them. All the heavy equipment, including semi-trucks, trailers, containers etc, have to be parked and maintained at these facilities. It is a niche and specialized asset, so much so that institutional investors had ignored it before. Acies Group took advantage of the situation and established a national network of deal sourcing. Its expertise in the logistics industry endows it with the capabilities to assess the risks and upside of these assets in a way no other can compete.
Investing is like sports. It is fun to watch, but better played by pro-athletes.
"We love industrial service facilities. Because of our network and expertise, most of the time we are able to acquire them below replacement cost and below market value. In addition, our expertise in the logistics industry sometimes allows us to re-design the acquired facility to improve the facility's utilization significantly and improve our rental income," added Ned Mahic. "What Acies does is a quintessential example of a great investor who can establish its proprietary deal flow, buy below market, and create additional value due to its industry expertise."
In such a difficult financial market, Acies Group and alikes are still able to deliver attractive returns. However, it might be almost impossible for individuals to replicate their formula, due to both the lack of expertise in specialty assets and assesses to deal flows. "Investing is like sports," said Jingjing, "It is fun to watch, not too fun for most to play. Hiring a "pro-athlete" might be the best solution."
SOURCE: Acies Group
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