Historically, private equity real estate investing was arranged through syndications that were only open to friends and family, or people with whom the deal sponsor had some sort of personal relationship. It’s often been referred to as “country club” equity for this reason. There was an underlying assumption that this relationship had been pre-vetted to some degree, and therefore, investors had enough confidence in the sponsor to write a check that would translate into positive returns.
The nature of private equity real estate investing changed dramatically in 2012 with the passing of the JOBS Act, a federal regulation that eased the requirements about who can invest in private equity real estate and under what conditions. Now, there are more efficient mechanisms by which investors can invest – namely, through private capital networks.
Becoming comfortable with taking the leap from steady employment to entrepreneurship, and the pivotal role that Mindset plays in that process.
While returns have dominated the CRE conversation over the past decade of growth, recent events, namely the volatility and unprecedented economic shutdowns caused by COVID-19 have amplified many investors concerns about the other side of the coin: risk. From hotels to shopping centers to office buildings, people are paying attention to risk. The market has already experienced tremendous change and it is difficult to forecast which further changes will occur.
However, what we are currently facing is far from unprecedented. In 2008, for example, many opportunistic investors were able to capitalize on a rapidly changing real estate market. Even a brief look at our economic history, dating from the Great Depression to the present, will reveal that moments of great uncertainty are often followed by moments of great opportunity.
As a developer or sponsor, part of your job is to explain this brave new world to investors. With the right mindset—and with supporting data—you can address their concerns and help them overcome the fear of the unknown.
Insurance is a classic case of misaligned incentives resulting in an industry that prioritizes commissions over customer value – but it doesn’t always have to be that way.