Investing in commercial real estate can provide attractive returns, but it also requires substantial capital and expertise. For individual investors who want exposure to commercial real estate without the hands-on responsibilities of direct ownership, real estate pooled investment funds can be an excellent option. In this article, we will explore what real estate pooled investment funds are, their benefits and risks, and how they allow individual investors to access the commercial real estate asset class.
Real estate pooled investment funds provide easy access to commercial properties
Pooled investment funds pool money from many individual investors to invest in real estate assets like office buildings, apartments, shopping centers and more. This allows individual investors to gain exposure to institutional-grade commercial properties that would normally be out of reach. The fund managers handle all aspects of selecting, acquiring, managing and selling the properties. For investors, it is a simple, passive way to invest in real estate.
Investors can diversify across property types and locations
A key advantage of real estate funds is diversification. The fund will invest in multiple properties, across different cities, sectors like office, retail, multifamily and more. This reduces the risk compared to owning just one or two individual properties. Investors get returns tied to the broad commercial real estate market rather than a specific building or local market.
Professional expertise in acquiring and managing properties
Experienced real estate fund managers have specialized expertise in finding good investment opportunities, pricing properties, securing financing, overseeing construction, and managing the assets once purchased. Individual investors can benefit from the fund managers’ real estate experience and leverage their negotiating power, networks and scale. This can lead to better performance compared to direct ownership.
Lower investment minimums than direct ownership
Whereas purchasing a commercial property directly may require millions in capital, pooled real estate funds often have minimums from $25,000 to $250,000. This can give individual investors exposure to high-quality commercial real estate that would otherwise be unattainable. The fund structure makes commercial real estate investing accessible.
Long investment time horizon and illiquidity
While real estate funds provide many benefits, investors should also be aware of the drawbacks. Real estate funds often have multi-year time commitments, 10 years or more. Investors’ money is tied up over this period. These funds are also illiquid, meaning there is no easy way to cash out of an investment before the fund winds down. Investors need to be comfortable with illiquidity.
Real estate pooled investment funds allow individual investors to gain exposure to commercial real estate in a diversified, passive manner under professional management. For investors seeking to add real estate to their portfolios, these funds can provide easy access to institutional-grade assets. However, the long time horizon and illiquidity are important considerations.