Astrum Investment Management expects to hold a $5 million close by the end of the year for its first fund, Astrum Fund I, which is targeting $50 million in commitments and will acquire light industrial, warehouse and research and development facilities in California through sale-leaseback transactions.
Under the fund’s investment strategy, Astrum will purchase assets from corporate owners and then lease the properties back 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.
“The economy and lending environment provides a nice window of opportunity,” said Nevin Sanli, managing director and founder of Astrum. The fund is targeting corporate owners that generate annual sales between $20 million and $200 million but are having difficulty obtaining growth capital from banks. A sale-leaseback allows the owner to free up capital to expand the business by selling the property, but ultimately retain ownership through the option to re-purchasing the asset, he explained.
Astrum Fund I will generate returns through the difference between the initial sale price and subsequent buyback price of the property. The pre-determined buyback price is calculated based on the amount of debt on the property and the amount of growth capital the business is seeking, rather than the fair market value of the asset.
Investors committing to the fund include high-net-worth individuals, which will kick in up to $500,000 each; family offices, with investments of up to $25 million; and fund of funds, which will put in $10 million to $20 million each.
The new fund, which is seeking a net internal rate of return of 15 percent to 18 percent, is expected to invest in about 10 properties, ranging from $8 million to $12 million. To avoid cross-collateralisation issues, each property acquired through the fund will become a separate limited liability corporation and receive financing from one or two different community banks.
Astrum’s sister company, Sanli, Pastore & Hill, a 20-year-old business valuation and investment analysis firm, will supply deal flow for the fund and already has identified about 60 potential transactions, said Sanli, who is a majority owner of both firms. All of the assets purchased through the fund will be liquidated by the end of the fund’s five-year investment period, either by selling the property back to the former owner or, if the company declines to buy, to outside investors during the fifth year of the lease.
Astrum Fund I is expected to close on its first deal during the first quarter of 2012 and complete its capital raise by June. Sanli said the firm will invest in additional deals through a second fund, for which it expects to target about $200 million in equity commitments.