In recent quarters, we have expanded our real estate investment offerings beyond distinct properties to Funds, Opportunity Zone, and 1031 Exchange investments. The goal is simple: to provide further means of diversification and tax-efficient investing strategies to complement the debt, preferred equity, and equity investments we have offered since inception.
Since the global outbreak of COVID-19, this diversity of product provides even greater benefit to our investors. Please read on for a review of our three “Approaches”, and how these different types of investment can help you position your portfolio for the economic recovery.
The Fund Approach
Private and non-traded fund structures offer investors a means of diversifying across private-market commercial real estate transactions within a single investment. Above all, we seek quality, experienced sponsorship in sourcing potential Fund investments, and such investments may target various strategies, including credit, core, opportunistic, and distressed assets. Here are some of the main reasons to consider a Fund investment at this stage of the economic crisis:
- Fund managers will invest your capital over time, and not at a single moment, potentially capitalizing on optimal transaction timing as the recovery takes shape.
- Because the recovery will impact asset types and geographic markets in a non-uniform manner, Fund products allow investors to further spread their real estate portfolio across a diverse array of properties.
The Tax-Deferred Approach
1031 Exchange and Opportunity Zone investments allow investors to roll over capital gains from sale of assets and defer (and, in the case of QOZ investments, potentially reduce) capital gains tax liabilities. At this moment, as the recovery begins to take shape, a Tax-Deferred Approach may make sense for the following reasons:
- It may be a favorable moment to manufacture capital gains. No one knows precisely how markets will behave in coming quarters. However, this is undeniably a time of strength for the single-family housing market, with low interest rates and a flight to real assets stoking demand. It is also likely that public equity markets will remain volatile: an election that is likely to be the most chaotic in memory, and ongoing supply and demand shocks resulting from COVID, will quite possibly make large swings a regular occurrence.
- The stage of the cycle may favor longer hold periods. 1031 Exchange investments will generally be longer-dated equity investments, allowing a greater time horizon for a macroeconomic rebound and asset price recovery. Even more so for Opportunity Zone investments, which necessarily require a 10 year hold period to capture maximum possible tax benefit.
Please note that you may participate in EquityMultiple’s 1031 Exchange-eligible investments even if you are not planning on rolling over capital gains. We seek Tax-Deferred offerings that are attractive real estate investments, irrespective of tax considerations.
The Direct Approach
Our Direct Approach reflects the work EquityMultiple has done since 2015: sourcing, underwriting, and structuring investments into distinct properties across the United States. Direct investments span the capital stack: we offer senior debt, subordinate debt, preferred equity, and equity investments. This wide range of risk/return profiles facilitates diversification and allows you to build your real estate portfolio in alignment with your risk tolerance and return objectives.
The Direct Approach offers a much higher degree of transparency than has historically been afforded to self-directed investors. Public REITs are characterized by transactional opacity, and may correlate more significantly with public equities markets. Offline syndications, usually available only through “country club” connections, carry high barriers to entry and are often geographically limited. Our Direct investments, conversely, allow you to see detailed information for each investment and participate for as little as $10,000 from home (or anywhere else you might be).
Investors in our Direct Approach benefit from a unique facet of our operating philosophy: we are active throughout every phase of each investment’s lifecycle, seeking to maximize returns on your behalf and provide the best investment experience possible.
- Our Real Estate Team conducts extensive due diligence on both the partner firm and each individual investment, conducting our own stress testing and return modeling in house. Ultimately we select only around 5% of investments evaluated.
- Our Investor Relations Team is always available to answer questions and provide guidance. At any time, you can engage our dedicated team through the chat feature at the bottom-right of your screen or schedule a time to speak over the phone.
- Our Asset Management Team works to mitigate risk, protect principal, and maximize returns on behalf of our investors. This means constant communications with our sponsor partners, and collaborating to confront challenges and address any major departures from the business plan.
The Bottom Line
At all points in the market cycle, private real estate investments are a solid complement to a traditional portfolio of stocks and bonds. Now, in the back half of 2020, with public markets roiled by volatility and the economic recovery just beginning to take shape, continued diversification among and within asset classes is all the more critical. These three Approaches can help you attain a new level of diversification, and position your real estate portfolio for success by gaining exposure to a wide range of geographic concentrations, operators, property types, strategies, and target hold periods.
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