More About Real Estate Investment Companies
1. What is a real estate investment company? A real estate investment company is a company that invests in real estate.
2. What kind of real estate do real estate investment companies invest in? Real Estate investment companies typically invest in commercial grade real estate such as office buildings, multi-family apartments, retail buildings, developments, hotels, resorts, and industrial. Some real estate companies specialize in niche markets such as residential real estate, medical buildings, technology buildings, malls, fast food properties, etc.
3. Where do real estate investment companies get their capital? Most private real estate investment companies invest other people’s money alongside a small portion of their own capital. It is common for pensions, insurance companies, endowments, family offices, wealthy individuals, and private equity companies to invest in Real Estate Funds run by real estate investment companies. Some real estate investment companies are self-funded and others are funded through public offerings in the form of real estate investment trusts.
4. How big are real estate investment companies? Real estate investment companies range in size by employees and the amount they manage. Typically the core investment team of a real estate investment company will be 4-20 people. These companies can manage anywhere from $1MM to tens of billions.
5. How do people or companies invest with real estate investment companies? Real Estate Investment Companies prefer to have investors invest in a fund. A fund allows the real estate investment company to invest the company as they see fit within the confines of the fund, which are typically pretty vague. The second favorite method in which real estate investment companies take funds is on an individual project basis. This is a good method for both parties on bigger projects as both parties can do greater due diligence. Another common method is call a club investment in which a few like-minded investors put money into a closed fund and selects a real estate investment company. The investors do this so they have greater control of what happens with their capital.
6. What kind classifications do real estate investment companies use to explain risk? Real Estate Investment Companies will often use: Core, Core Plus, Value Ad, and Opportunity to explain risk. Core is considered a safe investment typically in a large market with lower returns but long term leases in place with good tenants. Core Plus means that the company mostly invests in core properties but will sometimes invests in a small portion of value-add properties. Or it will buy a building that can be considered core with a few small improvements. Value-Ad explains when a company purchases properties or projects that need improvement so the company “adds value” to the project to increase its worth. Opportunistic is considered the moderate to higher risk and can include in building investments with no set buyer or tenant, land investment, buying investments out of default, or niche real estate classes.