SA Investors Win Big With USA Medical Real Estate
The story is not always bad for embattled South African investors. They have witnessed the decimation of their wealth through a perfect storm precipitated initially by the tragic state of the South African economy, compounded by the global Corona pandemic, and slam- dunked with the untimely downgrading of our credit rating the day that 35 day lockdown began on March the 27th. Our credit rating was dropped to Junk by Moody’s, and the subsequent further downgrade by Fitch to BB minus which ultimately saw the JSE drop by more than 35% between 18 January and 19 March, and the Rand to flirt with R20 to the USD.
But there are always winners in any bear market even during a real black swan event like we are living through currently. A group of local investors have been investing in the health care niche in the USA inspired by local Medical Real Estate thought leader Hennie Bezuidenhout.
“We were looking to grow our portfolio of Hospitals and Medical office buildings offshore and discovered that the health care model in America was very similar to our own, with a large private health care system, and that was very attractive.” Says Hennie.
“We were initially focussed on wealth preservation in USD, considering the deteriorating state of the fundamentals in South Africa and what that would do to the Rand over time, but soon learned that we could earn returns in excess of 8%, with a high level of comfort that our funds were safe, in low risk assets that are future proofed. We started off 6 years ago initially with small buildings in fast growing states and proved our hypothesis, and iterated to where we are today”
And the results support the strategy. Having now built a portfolio of over USD 320m with investors not only from South Africa, but also China and Brazil, Hennies investors are ecstatic.
The graph below shows how well South African investors have done, with anticipated returns (based on simple income-based valuation model) but blended with the appreciation of the USD against the Rand.
South African investors that exited the first Medical buildings in Atlanta, after the 5-year investment period, stand to make 198.8% on their initial investment assuming that they are repatriating their money from the USA now to South Africa at a rate of R17.50 to the USD.
While Medical 25 only closed in Q4 2019 local investors are already looking at potential returns of 123.5% and the question remains, if the rand continues its gradual organic slide against the USD, what will these returns look like in 2024.