Written by: Todd Schriber, Advisorpedia
On a practical, everyday level, clients are already familiar with commercial real estate as it includes buildings ranging from medical offices, multifamily, self-storage units and more.
For advisors, clients’ built-in familiarity with commercial real estate is important because that foundation can serve as a springboard for discussing the benefits of this asset class. Advisors can expand the conversation by highlighting the benefits of private commercial real estate.
Chances are a fair amount of clients are already somewhat knowledgeable of publicly listed real estate investment trusts (REITs) and the related funds, which are comprised of commercial real estate assets. In simple terms, private commercial real estate is essentially the unlisted equivalent. However, private commercial real estate offers benefits many clients aren’t yet aware of.
Let’s examine some of the primary benefits of private commercial real estate advisors can articulate to clients.
A Passive Play into Real Estate Investing
Whether it is owning commercial or residential real estate, being a landlord is considered one of the great wealth generators. However, that status is typically reserved for a small number of investors because it’s capital-intensive.
Direct ownership isn’t all it’s cracked up to be, but the potential good news for clients is that they aren’t leaving much in the way of benefits, like tax advantages and return potential, on the table by being passive participants in private commercial real estate through professionally-managed funds.
Potential to Mitigate Inflation Effects
Real estate has long been considered an inflation-fighting asset class and private commercial real estate allows advisors to enhance that proposition for clients – an enviable trait at a time when the Consumer Price Index (CPI) has hit 40-year highs, based on data by the U.S. Bureau of Labor Statistics.
“Investing in and holding hard assets like CRE in above-average inflationary periods is generally considered a good strategy, especially if the asset class allows for rapid rent adjustments. Unlike soft assets (like stocks), multifamily owners can quickly adjust rental rates to help mitigate the effects of inflation,” according to CrowdStreets Advisors, which is the advisor-focused arm of CrowdStreet.
Owing to favor among institutional investors, short lease terms and pricing power, among other factors, multifamily properties are one corner of the private commercial real estate space that could standout in high-inflation environments.
Less Volatility, More Diversification
Reduced volatility and enhanced diversification are principles that should always be in style, but those concepts can really come into focus in trying market environments. That includes 2022 when volatility is creeping higher and the diversification benefits of a standard 60/40 portfolio are failing because equities and bonds are falling in unison.
Due to the fact that private commercial real estate isn’t comprised of publicly traded assets, clients may not experience the day-to-day gyrations typical of equity and fixed income markets.
Multiple Ways to Invest
Thanks to CrowdStreet Advisors, advisors can present clients with various options for tapping into private commercial real estate. Those include professionally managed funds—including a non-traded REIT named C-REIT that is approved on major custody platforms, including Fidelity, Schwab, Pershing, TD Ameritrade, as well as 17 self-directed IRA (SDIRA) custodians. They also offer advisors the ability to create separately managed accounts or custom funds.
“CrowdStreet funds are constructed and managed by our in-house team of real estate professionals. They come in various flavors and focus on providing you with access to multiple properties based on a pre-defined investment strategy,” according to the firm. “These strategies can range from targeting investments in a specific region or property type, to focusing on different investment themes, sponsors, sectors, and multiple regions.”
To learn more about CrowdStreet Advisors, please visit their website.
Related: Accessible Private Commercial Real Estate for the Masses with Thomas McDonald
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1 Private real estate is, by nature, generally less volatile than the stock market. This lack of volatility does not necessarily translate to private real estate not fluctuating in or losing value. Further, the value of private real estate investments will fluctuate, and the value of real estate often lags behind general market conditions.
CrowdStreet, Inc. (“CrowdStreet”) offers investment opportunities and financial services on its website. Advisory services are offered through CrowdStreet Advisors, LLC (“CrowdStreet Advisors”), a wholly-owned subsidiary of CrowdStreet and a federally registered investment adviser. CrowdStreet Advisors provides investment advisory services exclusively to privately managed accounts and private funds and does not otherwise provide investment advisory services to the CrowdStreet Marketplace or its users.
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