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  • Profile photo of petefromsydneypetefromsydney
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    @petefromsydney
    Join Date: 2010
    Post Count: 10

    What do you think of Steve's the US Passive Income Fund? Are you going to invest in the Fund and why?

    Cheers,

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    A  high risk 5- 10 year REIT play in a collapsed(ing) market with an imploding economy based on assumptions like;  the FX rate will likely go down because it's historically high and the US economy will somehow save itself even though if everyone paid 100% taxes they still couldn't produce a surplus budget.

    If you talk to any very successful person they'll tell you (if they're honest) that they often make more wrong decisions than right. Steve's made a couple of good calls over the years and has picked the turning point in 2 markets. One needs to be careful now that they don't assume every play will be as successful as the last. On the contrary. One should assume any new opportunity receives the same DD and is not affected or influenced by subjective reasoning.

    There is nothing in this deal that looks good to me. The risks are high to extreme and the returns are little better than fixed rate term. Anyone assuming returns in excess of 10% (while higher returns are possible in theory) is being either overly optimistic or simply ignoring economic reality as it stands currently.

    Profile photo of Dabear1950Dabear1950
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    @dabear1950
    Join Date: 2012
    Post Count: 3

    All I can say is that having Funds sitting in an Interest Bearing account with inflation makes no financial sense.

    How then to attain an income stream? Shares? Equities… all frought with risk, all we have to do is ensure that your investment portfolio is reasonably balanced. The "No pain (risk) no gain" is real!

    I believe that Steve's presentation made a lot of sense and certainly all the knowledgeable people are suggesting that the AUD will go down not up. That is an upside only outside of any potential growth that you will get from the property investment side.

    I have personally seen the USA market and believe that Steve's expectations are realistic!. There is such good value over there but as an individual you would find it difficult to manage.

    For mine I believe this is a real opportunity. I'm going to Invest :-). Why Pete? Becuase sometimes you have to go with gut feel and get off the fence. I'm happily going with 20% of my funds.

    Profile photo of FreckleFreckle
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    @freckle
    Join Date: 2012
    Post Count: 1,681

    Six notable nontraded REITs on the slide

    Behringer Harvard Opportunity REIT I -58.80%

          

    Behringer Harvard REIT 00 $4.64 -53.60%

          

    Behringer Harvard Short-Term Opportunity Fund  -96%

          

    Cornerstone Core Properties REIT  –71.88%

          

    Inland Western Retail Real Estate Trust Inc.  -30.50%

          

    KBS Real Estate Investment Trust Inc. 6 -48.40%

    Source: SEC filings

    Questionable dividend yields of 5% to 10% (non traded REITs) are likely to fall closer to the 3.3% yield for publicly traded REITs

    http://www.investmentnews.com/article/20120329/FREE/120329894

    GENERAL COMMERCIAL INDEX REGRESSES: The Equal-Weighted General Commercial Composite Index decreased by 2.0% in June 2012 as economic uncertainty took a toll on property pricing. This index had steadily recovered since the beginning of 2012, but weak demand for space during the second quarter has begun to negatively affect pricing in this asset segment, indicating that higher quality property is back in favor again among investors. Nevertheless, the index closed the first half of 2012 a full 2.0% above January levels.

    http://www.costar.com/ccrsi/index.aspx

    On the pro side CCRSI above and RICS Global Commercial Property Survey Q2 2012 offer a slightly more positive but cautionary outlook for US commercial property.

    One of the major weaknesses I see in a manufacturing recovery in the US (which is touted as driving the positive numbers in Commercial RE) is that the sectors underpinning this uptick were the first to collapse in 07/08.

    'Onshoring' is seen as the new driver in a manufacturing recovery and consequently ComRE as companies bring back production to the US. Everything I see suggests 2013 will test this theory. Inventories among auto makers through channel stuffing are at bursting point. I suspect the US auto makers may well need major bailouts again next year. 

    The US macro Forecast Report 2012 from Cassidy Turley paints a fairly realistic picture of the ComRE market but some of their assumptions are overly optimistic I believe. They've identified the risks in the market and threats to ComRE but simply assume governments and central banks will somehow just fix the problems predominantly by applying more QE/LTRO type actions.

    What they fail to understand is that past QE/LTRO operations where all about supporting bank balance sheets not underpinning manufacturing or commercial business. 

    One thing is clear to me. Governments and central banks have not addressed the problems that caused the 08 GFC. All that's been done is a superficial papering over of the cracks. Massive amounts of additional debt have been created in unsuccessful attempts to reignite the worlds largest economies and shore up largely insolvent financial institutions. The global financial problem is now magnitudes bigger than 08 but somehow we're supposed to believe that a solution is just around the corner and that if we just believe then all will heal itself.

     In amongst this is the US economy with a $1.3T annual stimulus programmed through budget deficits,

    • debt of $16T and growing exponentially,
    • 48% of US citizens not paying any tax, 
    • 20 percent of all American men between the ages of 25 and 54 do not have a job at the moment,
    • average household debt $75,000,
    • 70% of GDP is government spending,
    • 70% of the Federal budget is medi care/medi aid and welfare,
    • the aging demographic will swamp the current budgets with unfunded liabilities over the next decade, 
    • social welfare benefits make up approximately 35 percent of all salaries and wages.
    • 48 percent of all Americans are currently either considered to be "low income" or are living in poverty.
    • Since 1970, the U.S. dollar has lost more than 83 percent of its value.
    • more than 46 million Americans on food stamps
    • 200,000 U.S. households will use the money from their tax refunds this year "to pay for bankruptcy filing and legal fees"

       

    The American Middle Class Under Stress

    An interesting and very scary article

    Are The Government And The Big Banks Quietly Preparing For An Imminent Financial Collapse?

    George Soros

    • “I am not here to cheer you up. The situation is about as serious and difficult as I’ve experienced in my career,” Soros tells Newsweek. “We are facing an extremely difficult time, comparable in many ways to the 1930s, the Great Depression. We are facing now a general retrenchment in the developed world, which threatens to put us in a decade of more stagnation, or worse. The best-case scenario is a deflationary environment. The worst-case scenario is a collapse of the financial system.”

    This presentation looks at the impending economic collapse and the 3 main drivers that ensure it will happen, Energy Environment & Economics. It expands on the theory of exponential growth and how the 3 E's couple together to virtually guarantee a GFC of almost unimaginable proportions. 

    There is absolutely nothing in the US economic outlook that would suggest it's nothing other than one huge risk play for quite moderate returns.

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    American Winter

    AMERICAN WINTER is a documentary feature film that shines a light on the dramatic personal stories behind the country's worst economic crisis since the Great Depression.

    Watch the trailer

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    Problems I have with this proposal.

    1. It's international,
    2. requires a more complex investment vehicle to apply funds,
    3. other than the principle the team is largely unkown and as far as I can tell has either no or limited commercial experience,
    4. no experience or track record in managing REIT fund investments (that I'm aware of)
    5. the US REIT side is an off market non tradable REIT
    6. little to no liquidity for long periods
    7. almost impossible to exit in a downshift market
    8. FX risk is extreme (no hedging offered)
    9. economic risk is extreme
    10. investment is a 5 – 10 year play – that puts this gamble fair smack in the middle of one of the most economically challenging events in history 

    The MSCI US REIT INDEX paints a quite different picture to a snapshot over the last 3 years

    https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1345869924775&chddm=468027&chddi=86400&chls=IntervalBasedLine&q=INDEXNYSEGIS:RMZ&ntsp=0

    And what the 33% over 3 years crowd neglect to tell you is that it still hasn't recovered its losses from barely 5 years ago.

    https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1345870713262&chddm=491096&chls=IntervalBasedLine&q=INDEXDJX:REIT&ntsp=0

    What punters also need to to understand is that value dynamics are different in market tradable REITs compared to off market non tradable REITs proposed here.

    In essence this is a bet on Steve McKnight's belief that he's picked a winner on commercial property. 

    Trouble ahead for high-yielding stocks, REITs
    June 5, 2012
    Mag Black-Scott, president of Beverly Hills Wealth Management, said that investors have to stop being drawn into high-yielding stocks – particularly real estate investment trusts — where the underlying numbers and the financial markets suggest that there is significant trouble ahead.

    The Trouble with Non-Publically Traded REITs
    I don’t like non-publically traded REITs. At all. And I’ve said as much countless times.

    Non-publically traded REITs are what they sound like: real estate investment trusts (which own income-producing real estate) that are not traded publically. Non-publically traded REITs are littered with problems for investors, and those problems were the subject of a recent FINRA investor alert.

    Are Non-Traded REITs Finally Headed Toward Transparency For Investors?
    December 12, 2011
    If history is any indication, it will be imperative for firms to go above and beyond what they have done previously in performing due diligence on the non-traded REITs they are offering. Just about the time the market for non-traded REITs was expanding, the real estate market across the country began to struggle mightily and this resulted in significant problems for many non-traded REITs. The difficult real estate market forced many non-traded REITs to adjust distributions and suspend the “buy-back” of shares from investors (often called the redemption program). One non-traded REIT, Desert Capital REIT, even went bankrupt (filing for Chapter 11 bankruptcy earlier this year). President of MTS Research Advisors, Michael Stubben, was recently quoted on investmentnews.com regarding the impact of the rough condition of the real estate market on non-traded REITs. He said, “As a result, the market values of their assets have declined, and these nREITs have experienced declines in occupancies and rents.”

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,749

    Freckle,

    Out of interest, had you read the Product Disclosure Statement prior to making these comments?

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,749

    Hello,

    Just to balance out the doom and gloom:

    http://www.usatoday.com/money/perfi/general/story/2012-07-21/reits-rebound/56389776/1

    "Real estate funds have posted an average annualized return of 33% over the last three years, according to Morningstar. That's the top performance among the fund categories it tracks. Year-to-date, the funds are up nearly 17%. That's about double the average return for diversified stock funds."

    The risks, and benefits, of investing in the Fund I have set up are outlined in the PDS which you can download from: http://www.PassiveIncomeFund.com

    As to Steve making 'a couple of good calls'… it is true that past performance is not a guarantee of future performance, but those two accurate calls  made significant amounts of money and times when the doomsdayers were running rampant.

    The reasons why I think the US commercial market right now is the most exciting opportunity I have seen are outlined in  videos that can be accessed at: http://passiveincomefund.com/video-webinars.html

    – Steve

    (Now because what I say is regulated, I need to include the required warnings)


    General advice warning: Past performance is not a guarantee of future performance. No earnings estimates are made. This information is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider the Product Disclosure Statement issued by Plantation Capital Limited ACN 133 678 029 AFSL 339481 in deciding whether to acquire an interest in the Passive Income (USA Commercial Property) Fund. You can download a copy at the following website http://www.passiveincomefund.com. PropertyInvesting.com Pty Ltd is an authorised representative of Plantation Capital Limited ABN 98 096 059 353, AFSL 339481. PropertyInvesting.com Pty Ltd's authorised representative number is 423856.

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,749

    Freckle,

    Thank you for the chance to flesh out a beneficial conversation.

    I think it is important that you disclose your name, your qualifications, and your investing experience as these are important considerations for those reading your posts.

    For my part I am a chartered accountant, with a Bach Business in Accounting and a Diploma of Financial Services. Aside from my formal qualifications, I have bought over 500 properties, with more than 200 in the US. I have been investing in property for 13 years. I am regularly asked for my opinion by various media outlets, making me one of Australia's foremost property experts.

    I don't say this to big note myself, or to put you down, rather just to put it on the record so readers can see the substance behind my answers.

    I would also caution you about whether you need an AFSL to make some of the comments you are. I will actually seek legal advice about this forum thread on Monday, and whether or not it needs to be taken down as PropertyInvesting.com does not have an AFSL.

    In the meantime though, you raised 10 issues that you have concerns with in respect to the Fund which I would like to reply to. They are:

    1. It's international

    It's important to understand that this managed fund is created, managed and regulated within Australia.

    However, it is true to say that the assets it will hold will be primarily in the US (some money will be retained in Aus).

    Other than cash, the assets of the Fund will be loans to, and units in, a US real estate investment trust (REIT). In turn the US REIT will acquire US commercial property.

    This is not a new model. It is used by a number of listed managed funds and Australian companies.

    The distributions from the US REIT flow to the Aus Managed Fund, and from the Aus managed fund back to investors (every six months).

    Capital appreciation occurs as follows: as the value of the US commercial property increases, so too does the value of the units in the US REIT (held by the Aus managed fund), and therefore the units in the Aus managed fund too (held by unit holders) [Note: assuming FX rates remain constant]

    2. It requires a more complex investment vehicle to apply funds

    In my opinion this is a factually inaccurate statement.

    The US REIT is quite a simple investing vehicle, and considerably so compared to trying to acquire the property directly by an Aus managed fund, or as an Aus individual.

    3. Other than the principle (sic) the team is largely unknown and as far as I can tell has either no or limited commercial experience

    This is completely incorrect. The other board members have significant commercial experience, both in managed funds, investment banking and real estate.

    We will also be supported by expert advisers in areas such as currency risk management.

    4. No experience or track record in managing REIT fund investments (that I'm aware of)

    This is true specifically in regards to US REITs.

    However there is considerable Board experience with various managed funds models. We are also being advised by US and Aus attorneys about the requirements, governance, etc of the US REIT.

    In short, what we lack in experience specific US REIT experience we are gaining via consultants.

    5. The US REIT side is an off market non tradable REIT

    This is true, however just because an investment is listed does not mean there is a market (buyers) or volume to provide liquidity.

    We have deliberately chosen not to list the investment due to the additional costs associated with listing and ongoing compliance.

    Some may argue being redeemed by the Fund at a published unit price provides greater certainty about knowing there is a buyer and at a transparent pre-known price.

    6. Little to no liquidity for long periods

    Liquidity (ie. not being able to cash out of the investment as and when you would like to) is a real and siginficant risk, which has been disclosed in detail in the Product Disclosure Statement.

    Remember, real estate is not a liquid investment (like cash), so this means investors need to be compensated (for the lack of liquidity) by higher rates of return.

    If this is not possible or achievable then the risk-to-return is not sufficient to justify the investment.

    I agree that investors who need liquidity are unlikely to find this fund attractive.

    7. Almost impossible to exit in a downshift market

    I don't believe 'almost impossible' to be true. The Board has strategies to create liquidity events other than having to sell properties (capital management, finance options, etc).

    Furthermore, our purchase strategy will see us diversify the investments by location, type and use meaning that although there is a risk of price decline then it is unlikely (albeit still possible) all assets in the portfolio will fall in value.

    8. FX risk is extreme (no hedging offered)

    'Extreme' is an emotive word which again I disagree with.

    The Board has chosen not to hedge because the research we have points to the Aussie being overpriced.

    The research we have points to the Aussie being over valued. Similar comments have been made by the RBA, and many CEOs (most recently BHP's CEO).

    That said, our AFSL allows us to hedge, and we will receive periodic expert currency strategy advice.

    Individual investors who are particularly worried about exchange risk can:

    a) manage the risk themselves (if they feel the Aussie will go higher)
    b) not invest

    Interestingly, a currency strategist recently told me the nature of this investment contains a natural hedge.

    That is, if US property prices do well then it is likely the USD will under perform. Alternatively, if US property prices decline, then the USD will strengthen.

    9. Economic risk is extreme

    Again, I disagree.

    While there is a mountain of economic data for and against economic recovery, my own observations are that the US economy is less risky than the Aussie economy and the Aussie property market.

    Investors need to make up their own minds though.

    Remember, the US economy remains the most politically stable, and the largest in the World.

    10. Investment is a 5 – 10 year play – that puts this gamble fair smack in the middle of one of the most economically challenging events in history

    I don't agree in any way, shape or form that an investment in the Fund is a 'gamble'.

    It is a matter of strategically identifying an advantage, and then leveraging the management team's skill and expertise to outperform to maximise the opportunity.

    Thanks again for the chance to answer your questions, and by doing so provide more information about the Fund.

    – Steve

    P.S. I also note than many of the links you have referenced relate to questionable REIT disclosure. As this is an Aus managed fund, it must comply with the recently revised ASIC RG146 which addresses many of the issues those articles refer to.  

    <hr class=”bbcode_rule” />

    General advice warning: Past performance is not a guarantee of future performance. No earnings estimates are made. This information is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider the Product Disclosure Statement issued by Plantation Capital Limited ACN 133 678 029 AFSL 339481 in deciding whether to acquire an interest in the Passive Income (USA Commercial Property) Fund. You can download a copy at the following website http://www.passiveincomefund.com. PropertyInvesting.com Pty Ltd is an authorised representative of Plantation Capital Limited ABN 98 096 059 353, AFSL 339481. PropertyInvesting.com Pty Ltd's authorised representative number is 423856.

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    I've seen all of your presentation videos and read your Disclosures page on your site prior to previous comments. I've since compared those to your PDS and they cover something close to 90% of the PDS but in less detail.

    I don't see that the PDS is materially important to this discussion at this point but may do so in future posts.

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681
    SteveMcKnight wrote:
    Freckle,

    Thank you for the chance to flesh out a beneficial conversation.

    I think it is important that you disclose your name, your qualifications, and your investing experience as these are important considerations for those reading your posts.

    • Names are unimportant and my personal privacy policy is to protect my confidentiality as much as is possible given I make comments in other areas (other sites) that are of a political nature and do not always support the powers that be or their actions. Given the nature of governments and other authorities one may construe that as somewhat Orwellian however I prefer to be safe not sorry.

    • I have a Dip Bus Stud, and 35 years in business. I invest in business and some shares. 

    • Do I feel qualified to comment? Based on the feedback I get it seems many out there see my opinion as a fresh view. I do not claim to be an expert in anything. I try offer opinion as opposed to advice but interpretation may differ.

    For my part I am a chartered accountant, with a Bach Business in Accounting and a Diploma of Financial Services. Aside from my formal qualifications, I have bought over 500 properties, with more than 200 in the US. I have been investing in property for 13 years. I am regularly asked for my opinion by various media outlets, making me one of Australia's foremost property experts.

    I don't say this to big note myself, or to put you down, rather just to put it on the record so readers can see the substance behind my answers.

    • I don't evaluate people based on their qualifications as a rule. Too many out there with letters after their names that are dumber than my dog. For the record I consider you to be, highly motivated, knowledgeable, experienced and for the most part an ethical business person. 

    I would also caution you about whether you need an AFSL to make some of the comments you are. I will actually seek legal advice about this forum thread on Monday, and whether or not it needs to be taken down as PropertyInvesting.com does not have an AFSL.

    • I doubt it. I have no pecuniary interest in RE at any level nor am I a responsible entity as defined by the  Managed Investments Act 1998

    In the meantime though, you raised 10 issues that you have concerns with in respect to the Fund which I would like to reply to. They are:

    1. It's international

    It's important to understand that this managed fund is created, managed and regulated within Australia.

    However, it is true to say that the assets it will hold will be primarily in the US (some money will be retained in Aus).

    Other than cash, the assets of the Fund will be loans to, and units in, a US real estate investment trust (REIT). In turn the US REIT will acquire US commercial property.

    This is not a new model. It is used by a number of listed managed funds and Australian companies.

    The distributions from the US REIT flow to the Aus Managed Fund, and from the Aus managed fund back to investors (every six months).

    Capital appreciation occurs as follows: as the value of the US commercial property increases, so too does the value of the units in the US REIT (held by the Aus managed fund), and therefore the units in the Aus managed fund too (held by unit holders) [Note: assuming FX rates remain constant]

    • ​being international presents problems should things go wrong. It would be virtually impossible for any investor to legally challenge a US based REIT. This is simply a consideration an investor should consider in their DD deliberations

    2. It requires a more complex investment vehicle to apply funds

    In my opinion this is a factually inaccurate statement.

    The US REIT is quite a simple investing vehicle, and considerably so compared to trying to acquire the property directly by an Aus managed fund, or as an Aus individual.

    • ​the funds themselves are straight forward entities however once you increase the layers you increase the complexity. This requires greater DD and a broader understanding of both entities and how their commercial relationship functions across international boarders. 

    3. Other than the principle (sic) the team is largely unknown and as far as I can tell has either no or limited commercial experience

    This is completely incorrect. The other board members have significant commercial experience, both in managed funds, investment banking and real estate.

    • ​i was referring to commercial realestate not commerce. The PDS CV's are fairly typical of corporate disclosures of this nature. I personally wouldn't back anyone with these fairly vague types of personal histories. They lack substance and specifics.

    We will also be supported by expert advisers in areas such as currency risk management.

    • ​they don't exist unless you know someone who can read crystal balls and that's the point. The markets have been volatile and literally impossible to call over the last few years. At no time in history have currencies been as manipulated as they are now. The idea that markets set the rate has now become ludicrous as algo's and HFT bots fight out complex strategies within the cyber trading markets.

    4. No experience or track record in managing REIT fund investments (that I'm aware of)

    This is true specifically in regards to US REITs.

    However there is considerable Board experience with various managed funds models. We are also being advised by US and Aus attorneys about the requirements, governance, etc of the US REIT.

    In short, what we lack in experience specific US REIT experience we are gaining via consultants.

    • ​I don't have a problem with day to day management or managements ability to meet statuatory requirements. 

    5. The US REIT side is an off market non tradable REIT

    This is true, however just because an investment is listed does not mean there is a market (buyers) or volume to provide liquidity.

    • ​no but it does mean in an off market Vs on market world that market REITs have way more liquidity and flexibility for investors than the alternative

    We have deliberately chosen not to list the investment due to the additional costs associated with listing and ongoing compliance.

    • ​that kind of concerns me. That suggest limitations within management to deal with the complexities of compliance which goes to experience coupled with penny pinching. Market research I've conducted indicates some nREITs are going public to increase liquidity. That however may be more an indication of difficulties managing the downturn over the last 5 years. I'm not saying this is good or bad but for me it throws up a red flag

    Some may argue being redeemed by the Fund at a published unit price provides greater certainty about knowing there is a buyer and at a transparent pre-known price.

    6. Little to no liquidity for long periods

    Liquidity (ie. not being able to cash out of the investment as and when you would like to) is a real and siginficant risk, which has been disclosed in detail in the Product Disclosure Statement.

    Remember, real estate is not a liquid investment (like cash), so this means investors need to be compensated (for the lack of liquidity) by higher rates of return.

    • ​I'm not with you here???  Every investment strives for the best return. Investors do not get compensated for going with a particular fund structure. Compliance cost for a market REIT is literally tiny fractions of 1% in additional cost over large funds.

    If this is not possible or achievable then the risk-to-return is not sufficient to justify the investment.

    I agree that investors who need liquidity are unlikely to find this fund attractive.

    7. Almost impossible to exit in a downshift market

    I don't believe 'almost impossible' to be true. The Board has strategies to create liquidity events other than having to sell properties (capital management, finance options, etc).

    • ​Disclosure 7 states this quite categorically. Depending on liquidity at any point in time an investor may face delays in withdrawing funds. If a market inverts investors may panic. If you faced a run on funds it would almost certainly be impossible for investors to extract their funds in a timely manner to prevent or contain losses.

    Furthermore, our purchase strategy will see us diversify the investments by location, type and use meaning that although there is a risk of price decline then it is unlikely (albeit still possible) all assets in the portfolio will fall in value.

    • ​You are in one market sector (commercial RE) and predominantly one class (B Class comm assets) in one country. In reality you are only diversified by region. Given sovereign economic risk that to me is a relatively weak diversification strategy.

    8. FX risk is extreme (no hedging offered)

    'Extreme' is an emotive word which again I disagree with.

    The Board has chosen not to hedge because the research we have points to the Aussie being overpriced.

    • an economic theory I have a lot of problems with. Henry suggested some months ago that the AU$ may become a safe haven currency even with a deteriorating ToT and resource sector decline. The AU$ has for many years been considered a resource currency. Funny how resources declined and as difficulties globally saw capital looking for safety and return headed in our direction. We are considered to be the MOST stable of economies with an HONEST market and economy hence a currently strong currency.
    • ​I'm not sure if your board has had a good look around yet but every major economy is in difficulty and central banks are in a currency war trying to make their currencies competitive to uphold declining exports. 
    • Given currency volatility and uncertain times ahead I would think any board would take prudent steps to hedge currency fluctuations as a matter of course.

    The research we have points to the Aussie being over valued. Similar comments have been made by the RBA, and many CEOs (most recently BHP's CEO).

    • ​Would that be the same CEO's that kept telling us alls well in the resource world and China will boom forever. Albenese and Kloppers are skating on thin ice after some disastrous investment calls.

    That said, our AFSL allows us to hedge, and we will receive periodic expert currency strategy advice.

    Individual investors who are particularly worried about exchange risk can:

    a) manage the risk themselves (if they feel the Aussie will go higher)

    b) not invest

    Interestingly, a currency strategist recently told me the nature of this investment contains a natural hedge.

    That is, if US property prices do well then it is likely the USD will under perform. Alternatively, if US property prices decline, then the USD will strengthen.

    • ​I think you need to talk to another advisor because he doesnt know what he's talking about. Heres the DJ REIT graphed alongside the AUDUSD over the last 10 yrs. Note how they track each other'. They go up and down together

    9. Economic risk is extreme

    Again, I disagree.

    While there is a mountain of economic data for and against economic recovery, my own observations are that the US economy is less risky than the Aussie economy and the Aussie property market.

    • this is where you and I diverge big time. A simple question is if the US was a corporation would you buy shares in it

    Investors need to make up their own minds though.

    Remember, the US economy remains the most politically stable, and the largest in the World.

    • ​I've have doubts about stability but that's another story. When you hold $16T in debt $200T+ in unfunded liabilities and $700T in questionable derivatives I suppose you are the biggest. The trouble with being big is you're not very light on your feet and when you fall over it hurts more.

    10. Investment is a 5 – 10 year play – that puts this gamble fair smack in the middle of one of the most economically challenging events in history

    I don't agree in any way, shape or form that an investment in the Fund is a 'gamble'.

    It is a matter of strategically identifying an advantage, and then leveraging the management team's skill and expertise to outperform to maximise the opportunity.

    • ​corporate speak for a gamble.  Definition – a. To bet on an uncertain outcome. b. To play a game of chance for stakes. 2. To take a risk in the hope of gaining an advantage or a benefit.

    Thanks again for the chance to answer your questions, and by doing so provide more information about the Fund.

    – Steve

    • ​Not a problem.

    P.S. I also note than many of the links you have referenced relate to questionable REIT disclosure. As this is an Aus managed fund, it must comply with the recently revised ASIC RG146 which addresses many of the issues those articles refer to.  

    • ​Yep. The fund may be 'stralian but the REIT is all 'merikan

    General advice warning: Past performance is not a guarantee of future performance. No earnings estimates are made. This information is of a general nature only and does not take into account your objectives, financial situation or needs. You should consider the Product Disclosure Statement issued by Plantation Capital Limited ACN 133 678 029 AFSL 339481 in deciding whether to acquire an interest in the Passive Income (USA Commercial Property) Fund. You can download a copy at the following website http://www.passiveincomefund.com. PropertyInvesting.com Pty Ltd is an authorised representative of Plantation Capital Limited ABN 98 096 059 353, AFSL 339481. PropertyInvesting.com Pty Ltd's authorised representative number is 423856.

    Profile photo of jayhinrichsjayhinrichs
    Participant
    @jayhinrichs
    Join Date: 2011
    Post Count: 1,177

    Interesting post:

    Caveat I have not read Steve's offering in detail so if I was reading between the lines. Looks like Steve is raising money for a US private non traded REIT that will then begin or has been buying commercial properties in the US.

    Steve is thinking the commercial investments are where the SFR's were 3 years ago. And Freckle is still negative on the US economy on a macro scale.

    There is opportunity in all of these arena's. The trick is knowing WHEN and WHERE to invest.  One can buy commercial properties all over America for next to nothing and in 10 years time they will still be worth next to nothing.. Just like buying SFR's in the Ghetto's of the big US cities they will never be worth more than 5k to 20k ever.

    I have a friend from the Bay Area ( San Francisco) that is pretty astute investor  he likes Phoenix and timed the sale of his SFR's very well ( sold out in 07 and 08)… Lately he has been buying small strip centers that are 70 to 100% vacant. So for the short term he is not getting any cash flow, but there is no way to know if this is 1 to 5 years before they bounce back. He if he is right and they do bounce back he will have some nice gains, if not well nothing ventured.

    If you take Retail and Office space in the best markets of the US you can still find 8 to 10 caps.. However anything above 10% returns is total speculation in my mind.  An investor will have to buy something that is not performing now and turn it around or hope that the Micro market bounce's back.

    Its one of the great things about the SFR's  as long as your buying something half way decent people need a place to live, Business if they can't make it won't open and those that own these types of properties just sit there with vacant units.

    I personally own 2 commercial buildings here in Oregon,, and have seen it first hand. Both of these units have taken me years to get tenants, and I still have vacancies… One property I am turning the offices into apartments.

    Bottom line in my mind is you need some pretty astute leaders to pull off buying commercial IE retail Office industrial in areas were they are selling at huge discounts to replacement costs. Thinking that the strengthening  in the market will just turn them around. And will generate 15 to 20% cap rates…And there is intense competition from the big players for the best markets were the market will bounce back just matter of time.

    I have no doubt this can be done but it will need to be done in the very best markets we have to offer, and in those markets there is competition as I stated above, but plenty of room for new investors.

    There is one project here in Portland were I live called Amber Glen,, it is about 250 acres and has already been developed out with streets and was to be an office retail complex. The Retail has done fairly well, the office is terrible, Big Reit from NY bought it all about 3 years ago for about 1/4 of a Billion,,, They are now in talks with the City to start tearing down Office buildings that are 5 years old and never were rented out and converting to Residential. I doubt this hedge fund will ever make a profit on this deal much less 10 to 20% annual returns.  And the big hub bub when they bought 5 years ago is they could not go wrong because they were buying for less than replacement value.

    So I wish Steve the best, and I am sure he will have some winners but he will also have some that don't pan out. Just like the rest of us that speculate on the markets.

    Lastly if the US economy implodes I will be the first one to tell anyone who will listen that the FRECKLE predicted this long ago :)

    We are starting to work on a few funds but we are taking different approach and setting them up ultra short term with nice returns that over a years period of time will out perform owning rentals be it commercial or residential.. We are very excited about this.

    Jay Hinrichs

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    Hey Jay!! Good of you to drop buy.

    Pretty much agree with what you say. It meshes with much of what I read.

    Steve's fund per se is OK by me. That's not the issue I see as problematic. Their economic and FX assumptions just don't gel with reality for me. The CRE report is up there with the worst I've seen. It was simply a restatement of generalised publically available data by and large with a nothing summary capped off with the usual 'but and if' statement to cover their backsides.

    They have focused on Texas, Georgia and Florida as regions worthy of CommRE investing. I can kind of go with Tx but Ga and Fl don't rock my socks by a long shot.

    The CRE report says everything should be honky dory provided employment and the economy pickup.

    Well lets see then..

    Texas

    Comptroller says strong Texas economy may slow in 2013

    Georgia

    Georgia economy at a ‘pause’

    Florida

    South Florida one of nation's most financially distressed areas

    UNF economist says Northeast Florida economy stagnant in July

    Florida economy faces long road to recovery, report says

    A common theme with all these states if you read their economic outlooks is that they are all highly dependent on the Euro zone for their economic survival. Up to 22% of GSP in some cases. Europe falls over they fall over. Really simply stuff.

    So everyone put their hands up who think the idiots in Europe can solve their economic problems without crashing the world economy or at the very least do substantial damage to it.

    Profile photo of slowachieverslowachiever
    Participant
    @slowachiever
    Join Date: 2006
    Post Count: 34

    I have now put $$$$ 60,000 in .Thanks Steve . Got the info I was after at the Perth seminar . Any type of investing requires research if it suits your personal situation .Make sure it is $$$ spread well ,and you hedge yourselves by what investment types have been chosen within portfolios , varying types .

    There are plenty of newsletters around to get onto and then have some ideas of how a spread could be set up , example "The Daily Reckoning" , buy some gold , some shares ,property direct , property listed or unlisted ,and manage the risk or get someone to mange the risk. Or speak to a financial planner who is not just an insurance broker turned planner, but someone who really understands investing in various market types.

    Anyway research it folks ,if it's your thing then go,go,go for it . We need to get in quick, get it started before our dollar may drop too much or the currency exchange will undermine us a bit to start with .

    COME ON   HURRY UP !

    Have not put any more in just yet as am considering another property here . A   "PPOR"   .

    Ian

    Perth Western Australia.

    In addition to this I think at our Perth seminar ,Steve was asked a question , I or someone said what about the overseas money crisis .Cannot remember exact word for word ,    but answer was if USA  goes down the shute  big time, we are all

    going to be "in so many words " in big poopoo trouble . ( those are my words in place .)

    .

    Profile photo of jayhinrichsjayhinrichs
    Participant
    @jayhinrichs
    Join Date: 2011
    Post Count: 1,177

    Slowachiever

    I love the comment "insruance broker turned financial advisor" that is so true here in the US.

    they sell you life insurance, Annuities, one product after the other.. really high commissions with residuals.

    I just presented my TWH model to a group of them.. And spent 5 days on a cruise ship with them. These guys focus on one thing and that is what the parent company will allow them to sell.. Just like if you go to a Toyota dealer, he is going to sell you a Toyota and not tell you how great a Range Rover is. LOL

    I think there is opportunity in the commercial end its just you need to be sharp sharp sharp… there is a reason these projects failed and they are avaliable to be bought again, someone failed at running them.

    Now to be fair and balanced.

    Many a good project went like this.

    Most commercial paper in the US was written at 5 year calls.. Everyone buying up this stuff in 04 05.. with no care or thought that the lender would not extend the loan again.

    GFC hits banks will not extend and want to be paid off… No other lenders are lending Owner has an operating business but cannot come up with the millions to pay the loan bank ends up foreclosing not because of lack of payment because the balloon payment.  So yes there are those deals out there.

    There are also many many commercial deals especially in Texas that have no hope.. One needs to only drive through texas and see out lying areas were the downtown commercial is all boarded because someone built a new walmart at the edge of town and every business moved.

    And when we look at values of Reits remember these are paper gains no one sold anything to create the gains. Rubber meets the road on a liquidation.

    JLH

    Profile photo of emma171emma171
    Participant
    @emma171
    Join Date: 2011
    Post Count: 161

    Jay

    I think you have hit the nail on the head… it is the calling in of the loans that is creating the interest and the attention to those who can manage it to pull the funds together to purchase is highly tempting.

    This HAS to be coupled with the fact that the SFR market is being hit by all those who declared bankruptcy 2 years ago and are back out with a vengeance with FHA loans.

    Moi.

    Profile photo of PropertyGutsPropertyGuts
    Participant
    @propertyguts
    Join Date: 2010
    Post Count: 57

    Thanks Freckle, i am OK with all your stuff, plus  i read the PDS, bought in, going to Melbourne next week,  Steve's management has been very transparent, but yes, i would like to hear some from other management.& drectors 

    Profile photo of king-coking-co
    Participant
    @king-co
    Join Date: 2005
    Post Count: 13

    The US passive income fund is an easy way to gain exposure to both the US currency and commercial property market. 
    Some of my reasons for investing in it are:

    • Experience of Steve and the team involved in property investments
    • Integrity and transparency of Steve
    • Investment philosophy of purchasing positive cashflow properties at below replacement cost
    • Extensive due diligence procedures on every property purchased
    • Ease of management – good on the ground managers and no hassle for investors
    • Diversity of tenants and buildings
    • I have been on the ground in the US and personally inspected some of the properties purchased or being reviewed for the fund

    I invested $50K in the fund initially. For the 6 months to December I received a distribution of $1960 on the initial $50K, an annualized return of 7.84%
    The unit price has increased from $1 to 1.09, a capital increase of 9% in 6 months.
    This is with only about half the funds deployed. 
    I have since put another $50K and am likely to put more in. 

    With investments in 16 other properties both direct commercial, through funds, residential properties both here and in the US I see this as a simple and high return investment with a team of proven and trustworthy professional property investors.

    They have a proven track record of understanding the market direction and seeing the currency direction which, compared to the other REITs quoted by Freckle outperformed them significantly. 

    My expectation is that as funds are deployed and the market improves it will continue to increase the yield performance towards the 10% mark and the average capital base by a similar amount per annum for the next 5 years. 

    The opinions expressed are from my personal experience and expectations.

    Profile photo of FreckleFreckle
    Blocked
    @freckle
    Join Date: 2012
    Post Count: 1,681

    Thanks for the update King.

    It's early days yet and a sunny day doesn't make a summer. My position on the US hasn't changed. If anything I only see a deteriorating picture emerging as the US appears to be heading towards a recession (in official terms – reality is it's more like a depression in many states). Long term I still see a significant risk. I'll be surprised if this fund survives longer than 5 years without losses. The only buffer I see at the moment is the potential for FX to soften any loss and boost gains.

    One thing you haven't mentioned is how much of your gains were FX gains and how much were actual investment gains.

    Unit prices are only real when you exit. Anything else is just speculative valuations. 

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,173

    How is the fund performing so far? It must be just over a year old now.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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