The Great Real Estate Investment Debate: Fund vs Individual Deals

“The best investment on Earth is earth.” — Louis Glickman

Long before stocks and bonds, real estate helped people to increase and preserve their wealth and continues to do so. According to a recent survey by Knight Frank, 46% of private bankers and wealth managers see real estate as the top investment opportunity in the current high inflation and high interest rate environment. This is due to real estate’s low volatility, upward bias in prices, and a positive correlation with inflation.

However, not every piece of earth is equal. Would you rather invest in New York or New Delhi? The good news is that you don’t need to go too far to find some of the best real estate investments in the world.

The benefits of investing in Switzerland

Switzerland boasts stunning landscapes and a stable political and economic climate. But more importantly, Swiss real estate has a track record of strong performance with low volatility.

Over the last 20 years, the Swiss real estate market averaged an annual return of roughly 11% with 2.59x lower quarter volatility in comparison to the US real estate market.* Furthermore, while many markets saw prices decline, the price for Swiss single family homes increased by 4.3% in 2022

* The calculations were made using SXI Real Estate® Fnds Broad TR (SWIIT) as the Swiss real estate market, and Dow Jones U.S. Real Estate Index (DJUSRE) as the U.S. real estate market.

These stable returns are driven by Switzerland’s high-quality housing and apartment stock, strong demand, and limited supply.

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent.” – Theodore Roosevelt

Investing in individual real estate deals

Rather than buying into a managed fund that provides an average of its real estate investments, what if you could cherry-pick the best Swiss real estate investments and still enjoy the purchasing power of a fund? As Warren Buffett says, you can build wealth faster by concentrating on the right assets.

Well, there is a way. Under Swiss law, an investment manager can identify an individual investment opportunity, raise capital from a group of investors, and then establish a dedicated investment vehicle (an SPV) to acquire and hold the investment.

Investors receive shares or interests in the SPV in return for their money, which the SPV cannot use for any other purpose. Investors can exit the SPV and realize the return on the investment by selling their SPV shares.

In addition to its ability to laser-focus on the best real estate opportunities, individual real estate deals using SPVs also have several other benefits. These include:

Greater control
By investing in individual deals, investors have greater control over their invested money and can choose to invest only in deals that align with their specific investment goals, values, and risk appetite. They also have greater transparency of how the deal is being managed and its performance.

Diversification
Adding an individual deal with its unique characteristics to an existing portfolio can provide investors with greater diversification compared to an investment in a more generic fund.

Lower fees
Investing in individual deals may have lower fees compared to traditional investment vehicles such as mutual funds or exchange-traded funds (ETFs), as there are typically fewer intermediaries involved in the investment process.

It's important to note that investing in individual deals also comes with its own risks and challenges, such as less liquidity compared to a public investment market and potential difficulty in finding suitable investment opportunities. However, there are individual deals that make it possible to invest in highly profitable real estate even in difficult economic conditions.

What deals are we talking about? Let's find out in more detail.

Individual Real Estate Development Projects from Le Bijou

Le Bijou identifies high-quality locations and creates tech-enabled apartments that generate impressive all-season cash flows for all investors. We service hotel guests, high-margin long-term tenants, and top-tier corporate executives.

Here are some more details on our existing deals.

1. Bahnhofstrasse 89, 8001 Zurich

Zurich is ideal for investing in real estate. As one of the leading financial and economic centers in Europe, the city attracts many investors and has a high demand. Despite this, supply is limited due to strict zoning laws and a lack of available land for development.

The project at Bahnhofstrasse 89/Schützengasse 14a has one of the best locations imaginable in the city, steps away from countless luxury boutiques, stores, restaurants, and top-tier corporations. Furthermore, the flexible architecture allows adjusting to whatever the market demands. From 49 junior-suite-sized units and large suite buyouts to event bookings.

The project is forecasted to deliver an average return of up to 22.22% p.a. (A-Shares), and up to 15.54% p.a. (B-shares).

As the property is leased from the owner, investors are not exposed to the pressure of interest rate rises. Le Bijou has been leasing the building for over 40 years and therefore does not carry the typical risks of traditional real estate.

2. Schauplatzgasse 22, 3011 Bern

Bern is located just 95 kilometers from Zurich and is the Federal capital of Switzerland. While it is smaller than Zurich, Geneva, Basel, and Lausanne it has recently been voted by expats as the most livable city in the world (alongside Copenhagen). It has all the services of an international city with none of the big-city stress of its larger neighbors. From its covered arcades to its UNESCO World Heritage Site, it is charming and very relaxed.

The project at Schauplatzgasse 22 has an outstanding location close to many Swiss government buildings, luxury boutiques, stores, restaurants, and company offices.

Le Bijou will operate apartments on the top floor with the bottom floors utilized for coworking spaces, meeting rooms, virtual offices, and automated gastronomy. Altogether the project will have eight revenue streams under one roof.

It is forecasted to deliver an average return of up to 14.93% p.a. (A-Shares), and up to 10.44% p.a. (B-shares).

Conclusion

Many ultra-high-net-worth individuals (UHNWIs) have built their wealth on individual real estate deals. They have leveraged unique opportunities and contacts to grow their wealth. Individual real estate deals through SPVs offer a similar opportunity.

The Le Bijou apartments in Zurich and Bern are forecasted to provide strong returns and stability in the face of rising inflation and volatile returns from stocks and bonds. But this is just the beginning.

At Le Bijou, we continue to evolve our operating model to cast our expert eyes over potential new locations and welcome all who are as passionate about real estate as we are and are keen to collaborate to increase their return to join our path.