Los Angeles-based Astrum Investment Management is preparing to launch its second commingled real estate fund while its first is approaching its $50 million equity target and is expected to close in early 2014, founder and managing director Nevin Sanli told PERE.
Astrum Fund I, which launched to high-net-worth individuals and family offices in October 2009, operates a distinctive sale-leaseback strategy, in which the fund purchases assets from corporate owners then leases the properties back to those firms for a 20-year period. After the fifth year of the lease, the seller has the option to buy back the building at a pre-determined price. Astrum’s tactic is shared by only a few players in the industry, such as LCN Capital Partners and Angelo, Gordon & Co.
Sanli believes this niche approach gives Astrum an advantage of higher security. “We always have an exit strategy that’s certain as opposed to not knowing when to sell, to whom and at what price,” he said. “We know when we’re selling and to whom, that way we never lose control.”
Astrum has begun to invest the capital raised for Fund I, buying five properties in the last year with two additional deals pending. The transactions range from $6 million to $15 million in size and average a 12 percent cash-on-cash return for investors. With leverage, the fund will have $114 million in purchasing power to invest in light industrial properties, warehouses, research and development and shipping facilities in major US port cities, particularly in California.
With plans to wrap up Fund I around the end of the first quarter of 2014, Sanli and his team have begun the process to open Fund II. Preparations are scheduled to begin at the end of this year for marketing and fundraising throughout 2014.
Astrum’s second fund will apply a similar sale-leaseback strategy to that of its first, but with larger goals both financially and geographically. Fund II will look to overseas investors for its $250 million equity target and will invest some of that capital in overseas properties. Though Fund I was too small in size to attract overseas money, Sanli hopes Fund II will cater to international investors who have shown interest in Astrum. Like its first vehicle, the new fund will seek commitments from high-net-worth individuals and family offices but is open to institutional investors as well. With leverage, that vehicle could have up to $700 million in buying power.
Aside from its stateside investments, Fund II will seek properties in Canada, England and other countries with “solid title laws, contract laws and legal procedures” to ensure Astrum’s contract-based strategy will be as secure as possible, Sanli said. The firm will avoid the risk of investing in emerging markets.
Fund II also will offer extension development for existing properties in Astrum’s first fund, giving current tenants the opportunity to expand to another area with a fixed-price leaseback. Astrum also hopes to invest in more portfolios, ranging from six to seven properties, and will consider higher purchase prices.
Despite having a much larger buying power with Fund II, Sanli hopes to stay close to the firm’s price range for Fund I. Focusing on properties from $15 million to $20 million, Astrum encounters minimal competition, as bigger funds target more expensive properties and not many individuals have the buying power to invest that much capital.
“We’re playing in the elephant’s legs,” said Sanli. “We like that place, so we’ll try to stay there.”