Commercial Real Estate Investing Options: What’s the difference?
For decades, commercial real estate investment was a privilege reserved for investors with tight ties to brokers or real estate entrepreneurs. Prevented from soliciting capital easily because of restrictive securities laws, these entrepreneurs, called sponsors, raised money to buy or build property by creating a real estate syndicate of investors willing to pool capital. Qualified investors without sponsor connections were unable to invest directly in commercial real estate deals, leaving opaque options such as Real Estate Investment Trusts (REITs) or real estate funds as their only alternatives.
That changed in 2012, when the Jumpstart Our Business Startups (JOBS) Act gave rise to crowdfunding. Crowdfunding allowed real estate sponsors to bypass financial regulations and solicit capital online, giving them access to a much wider audience of potential investors. People who had never considered commercial real estate could now put as little as $10,000 to work in deals of varying quality in regions across the country.
Today, the marketplace continues to evolve. Investors expect crowdfunding’s convenience, but they also want access to thoroughly vetted, institutional-grade opportunities with stronger cash flow and reduced volatility. Here’s how you can decide which approach to commercial real estate investing is right for you.
What is crowdfunded real estate, and how is Cadre different?
Crowdfunded real estate helps sponsors build a syndicate of investors using an online platform or marketplace. Sponsors post real estate opportunities and accredited investors can choose among deals happening throughout the country.
As a potential investor, prepare to spend a significant amount of time performing due diligence – especially if you are new to commercial real estate. That’s because many crowdfunded deals are lightly vetted by third parties that are not associated with the crowdfunding platform or marketplace. Instead, the platform acts as an intermediary. And the platform owner may not have a personal interest in seeing every published opportunity turn a profit.
Pay special attention if a sponsor-underwritten, volume-based deal promises an exit value that seems too good to be true. It’s unlikely that the crowdfunding marketplace owner invested his or her own capital in every deal published on the platform or took the time to rigorously analyze them. The marketplace may not guarantee the accuracy of the research, either – especially if a third party performed due diligence.
(Learn more about realistic returns and informed investing in today’s competitive environment.)
We differ from traditional crowdfunded real estate in a few important ways:
- Because we have balance sheet capital, we’re able to fully commit to deals, building credibility in the marketplace.
- We perform our own thorough due diligence on every opportunity we offer, and we share these details because we are committed to providing investors with deal-level transparency.
- By co-investing in every deal we close on our platform, we have a vested interest in properties that produce strong returns – for our investors, employees, and ourselves.
What about REITs and real estate funds?
REITs and real estate mutual funds may be friendly options if direct investment in commercial real estate isn’t important to you. But many serious investors shy away from these vehicles because fund managers often charge high fees. In addition, REITs and real estate funds lack deal-level transparency. You’ll leverage the fund manager as middleman and invest in a blind pool of assets selected and vetted by him or her.
Our direct-investment business model provides deal-level transparency and thorough due diligence that includes projections, planned improvements, and information about prospective tenants. If you’re less interested in investing in specific properties but like commercial real estate and institutional-grade deal flow, you can opt to open a managed account instead.
Begin investing in commercial real estate
At Cadre, we’ve dedicated our efforts to providing access to institutional quality private real estate that allows for attractive relative return potential, diversification, tax efficiency, and liquidity optionality. Our experienced real estate professionals and data-driven approach are geared toward making informed bets on specific sectors and geographies in order to achieve strong risk adjusted returns. above the industry average. To get started, please request access.