Investors from across the globe are gravitating toward online crowdfunding platforms, viewing them as venues that foster transparency and promote data-driven investing.
We can only expect this movement to continue accelerating as Millennials move into their wealth accumulation years. Having grown up in a digital, data-driven world where Kickstarter-type campaigns are the norm, this age demographic is 10 times more likely to already be using online platforms than Baby Boomers.
In response to this trend, direct investment platforms continue to crop up across a variety of industries to meet the needs and desires of modern investors. Thanks to the JOBS Act, and subsequent rule changes that allowed for general solicitation of private placements, commercial real estate joined the lineup.
CRE's digital era is great news for investors and those who advise them — but it also adds a layer of depth and complexity by increasing opportunities in an asset class that used to offer rather limit investment opportunity to most investors.
The Data Deluge
Until recently, investing in an individual CRE property on behalf of a client was a tall task. Even if advisors had numerous personal ties to sponsors, it was difficult to effectively review a single asset's specific attributes. Sponsors did not have an easy way to compile and present this in-depth data, and advisors lacked an easy way to assess and weigh it against their clients' goals.
As a result of the difficulty in finding and analyzing a direct investment, fulfilling a CRE allocation within a portfolio often meant relying on publicly traded (or non-traded) REITs. When exploring these securities, advisors could access big-picture data regarding the overall performance and strategy of each investment trust. Though limited, this was a sufficient amount of information to empower an investment.
Today, however, online CRE platforms address these hardships. They offer a depth of information that allows advisors to confidently determine whether an individual property is better suited to a client's risk, liquidity, and investment objectives than an REIT or mutual fund. Online offerings span the real estate spectrum. Advisors can find everything from triple-net lease investments with a focus on income to development opportunities that are focused on capital appreciation.
Advisors who capitalize on CRE's digital era today will be seen as tomorrow's leaders in the wealth management world. They can expand the range of solutions and overall value they offer to clients — and they can better attract Millennial investors as they plan for the future.
Understandably, this data-driven environment may seem daunting to advisors who limited their CRE involvement to REITs. Here are three tips that will help make the adjustment easier:
Choose an advisor-centric platform.
Online direct investment platforms are new; most are just a few years old. Many were founded as technology solutions that focused primarily on fostering engagement directly with investors. In doing so, they failed to recognize that many investors rely on financial advisors to make decisions on their behalf.
The right platform doesn't make this false assumption. It should provide advisory firms with the information needed to meet due diligence requirements, and it should present this information in understandable and digestible frameworks. Beyond that, it should offer tools that foster collaboration and allow an advisor to track investor interest and engagement.
In a data-driven environment, it makes sense to gravitate toward the most transparent building sponsors. Investing platforms should make it easy for sponsors to create and distribute in-depth digital reports. Look for platforms and sponsors that provide a wide range of information, such as the property's attributes, its history, tenant information, its competitive position in the market, a detailed offering memorandum, and a full description of the investment structure.
A sponsor who doesn't provide this level of transparency will not be a great partner. He or she will make it difficult for advisors to best serve their clients.
Pay attention to sponsor track records.
Beyond property data, online platforms allow building sponsors to tell a more complete personal story, from their investment philosophies to their historical successes in the CRE realm. Advisors should expect to be able to understand why a sponsor owns the real estate, his or her plans for the property, and why investors are being sought now. The story should create trust, understanding, and the type of comfort level needed to recommend the investment to a client.
When diving deeply into a sponsor's track record, assess how well these factors align with a client's goals. Some sponsors focus on owning only one or a limited number of property types in certain geographic locations — there are benefits to working with such specialists.
Given the abundance of information now available through online crowdfunding platforms, direct investment in CRE has become much more feasible for wealth advisors. Those who are willing to get out in front of the do-it-yourself movement by offering a do-it-for-you service will put themselves in a better position to capitalize on the direct investing migration.
As a corporate and real estate partner with Armstrong Teasdale, a leading St. Louis-based law firm, A.J. Chivetta focused on domestic and international capital transactions. A.J. has worked for more than 30 years across the U.S., Europe, and China and has been recognized as one of the "Best Lawyers in America."
A.J. served as the primary outside counsel for Cassidy Turley, leading the legal team that helped the business become one of the country’s largest and fastest-growing commercial real estate service companies. A.J. co-founded Selequity.com, an online private placement platform for commercial real estate investment, with former clients who shared the belief that web-enabled access to real estate opportunities would transform real estate capital.