Who Invests in Commercial Real Estate in the US

Many individuals and organizations invest in commercial real estate in the US, including high net worth individuals who often make up a significant portion of investors.

Pension funds and sovereign wealth funds also invest heavily in commercial real estate, as they seek to diversify their portfolios and generate stable returns.

In addition to these large-scale investors, smaller players such as family offices and high net worth individuals also invest in commercial real estate, often through partnerships with experienced developers or property managers.

These investors are attracted to the potential for long-term capital appreciation and rental income that commercial real estate can provide.

Commercial real estate ownership is represented by people or organizations that invest in commercial real estate as a way of building wealth. Many individuals, including a young woman I recently met, start small and parlay their first investment into a portfolio of properties.

The private equity investors are consistently the most abundant type of investor, often accounting for more than 50 percent of the total pool. Families, large corporations, insurance companies, financial institutions, governments, foreign investors, real estate investment trusts (REITs), and religious institutions also invest in commercial real estate.

Here are the main types of investors in commercial real estate:

There are several types of real estate investors, each with their own unique goals and strategies.

High net worth individuals invest in commercial real estate as a way to diversify their portfolios and generate passive income.

Accredited investors are wealthy individuals who have a net worth of at least $1 million, or who have made at least $200,000 in income for two years, making them eligible to invest in commercial real estate.

Institutional investors, such as pension funds and insurance companies, invest in commercial real estate to provide a steady income stream for their beneficiaries.

Family offices, which are private wealth management companies for high net worth families, also invest in commercial real estate to grow their wealth and provide for future generations.

Real estate investment trusts (REITs) allow individual investors to pool their money together to invest in commercial real estate, providing a way for smaller investors to participate in the market.

Private equity firms invest in commercial real estate to buy and renovate properties, then sell them for a profit.

Investing at the top of the capital structure is a key concept in commercial real estate. Investors in commercial real estate debt serve as lenders to property owners who borrow money to purchase, renovate, or repurpose a property.

By investing at the top of the capital structure, CRE debt investors are entitled to receive the income a property generates ahead of the property owner. This priority of payment may help protect CRE debt investor's income and principal, especially during market downturns.

Here are some key benefits of investing at the top of the capital structure:

This investment strategy can be particularly appealing to investors who want to minimize their risk while still earning a steady income from their investments.

Most commercial real estate ownership is concentrated in the hands of two types of investment firms: REITs and Private Equity.

REITs, or Real Estate Investment Trusts, own a significant portion of commercial real estate assets.

Given their size and cost, it's no surprise that there are few individual commercial real estate property owners.

In the United States, the commercial real estate market is valued at near $16 trillion. The total size of this market makes it a significant investment opportunity for many organizations.

Many of the organizations that track real estate consider industrial, retail, office, lodging, and amusement as the types of real estate that are considered commercial. This broad definition encompasses a wide range of properties.

The private equity investors are consistently the most abundant type of investor, often making up more than 50 percent of the total pool. They are individuals, small 2-10 person LLCs, and families who invest in commercial real estate as a way of building wealth.

Large corporations, insurance companies, financial institutions, governments, foreign investors, real estate investment trusts (REITs), and religious institutions also invest in commercial real estate. However, private equity investors make up the majority of the total pool.

John Malone is the largest private landowner in the U.S. with 2.2 million acres, which is about twice the size of the state of Delaware. The federal government is also a significant landowner, with 640 million acres.

REITs are a type of tax-advantaged entity that allows investors to pool their capital with debt to purchase commercial real estate assets. REITs can be publicly or non-publicly traded.

By investing in a REIT, you become entitled to a share of the income produced by the REIT-owned properties. As long as the REIT meets certain requirements, investors benefit from certain tax advantages.

REITs collectively own more than $3.5 trillion in gross assets across the US. This staggering figure represents more than 500,000 properties.

Stock exchange listed REITs alone own approximately $2.5 trillion in assets.

Private equity firms play a significant role in the commercial real estate industry. They raise equity capital from high net worth investors and deploy it into commercial real estate assets.

These firms are privately held and not required to report their ownership numbers, making it difficult to determine the total value of private equity holdings. However, according to Wall Street Oasis, Blackstone was the largest capital raiser in 2020 with an astonishing $64.9 billion.

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Blackstone has a substantial presence in the industry, with $196 billion in investors' capital under management and a total value of their real estate portfolio at $368 billion.

Private equity firms combine funds with debt, use them to purchase commercial properties, and distribute returns to their shareholders. They are among the largest owners and operators of all types of commercial real estate.

One notable private equity firm is Brookfield Asset Management, which has investments in office buildings, retail spaces, and infrastructure projects worldwide.

Here are some key facts about private equity firms in the commercial real estate industry:

Investment Management Companies play a crucial role in the real estate investment landscape. They provide a platform for individuals and institutions to pool their resources and invest in various real estate assets.

BlackRock, a leading investment management company, has a significant presence in the real estate market, managing over $100 billion in real estate assets. This scale of investment demonstrates the company's ability to mobilize capital for real estate development and acquisition.

Investment management companies often partner with experienced real estate developers and operators to identify and execute investment opportunities. This collaboration enables them to tap into the expertise of local market players and create value in the real estate assets they manage.

The Carlyle Group, a global investment firm, has a dedicated real estate investment platform that focuses on investing in core and core-plus properties across the United States. Their investment strategy is centered around identifying high-quality assets with strong potential for long-term appreciation.

Investment management companies typically charge fees to their investors, which can range from 1-3% of the assets under management. These fees cover the costs of managing the portfolio, including asset acquisition, property management, and financial reporting.

Real estate investment trusts (REITs) are a popular investment vehicle in the real estate market, and investment management companies often sponsor and manage these trusts. For example, Simon Property Group, a leading REIT, is sponsored by a team of experienced real estate investors and managers.

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Accredited investors are individuals who have the financial means to invest in commercial real estate. They must have an annual income of at least $200,000 (or $300,000 for married couples) and a net worth of at least $1 million (for both individuals and married couples), excluding the value of their primary residence.

This financial threshold is set by the Securities and Exchange Commission (SEC) to protect inexperienced investors from being taken advantage of. Accredited investors are exempt from certain securities regulations, allowing them to access private offerings that may not be available to the general public.

Accredited investors can invest in a variety of commercial real estate options, including commercial real estate syndications, private equity and hedge funds, and limited partnerships. They can also invest in the stock of privately held firms.

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An accredited investor in commercial real estate is an individual who meets specific financial criteria. They must have an annual income of at least $200,000, or $300,000 for married couples, and a net worth of at least $1 million.

This net worth does not include the value of the investor's primary residence. This is a crucial distinction, as many people may have a significant amount of equity in their home, but that doesn't count towards their net worth.

To qualify, investors must meet these financial thresholds, which are set by regulatory bodies to protect inexperienced investors from making poor investment decisions.

To qualify as an accredited investor, an individual must have an annual income of at least $200,000 (or $300,000 for married couples).

The Securities and Exchange Commission (SEC) sets this income requirement to ensure that investors have the financial means to take on the risks associated with commercial real estate investing.

An individual must also have a net worth of at least $1 million (for both individuals and married couples) to qualify as an accredited investor.

This net worth requirement does not include the value of the investor's primary residence.

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Accredited investors have access to a wide range of real estate investment opportunities.

One of the most popular options is commercial real estate, which can include office buildings, apartments, and retail spaces. Accredited investors can invest directly in these properties or through commercial real estate syndications.

Accredited investors can also invest in private equity and hedge funds that focus on real estate. These funds typically pool money from multiple investors to invest in a variety of properties.

Oil and gas investments are another option for accredited investors. This type of investment involves investing in the exploration and production of oil and gas reserves.

Accredited investors can also invest in limited partnerships, which are partnerships that are typically formed to invest in a specific property or project.

Here are some types of real estate investments available to accredited investors:

As an accredited investor, you have the opportunity to become a senior lender in commercial real estate, which means you're entitled to receive income from a property ahead of the property owner. This priority of payment can provide a level of protection for your income and principal, especially during market downturns.

Being a senior lender can be especially beneficial when there are changes in the amount of income a property generates or property values. In fact, if the property value declines, the senior lender is not impacted, while the property owner's equity value may be significantly reduced.

To qualify as an accredited investor, you'll need to meet specific financial requirements, such as having an annual income of at least $200,000 (or $300,000 for married couples) and a net worth of at least $1 million (for both individuals and married couples).

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Investors must comply with various regulations and laws when investing in commercial real estate.

Foreign investors can invest in US commercial real estate through the EB-5 Immigrant Investor Program, which requires a minimum investment of $900,000.

The Tax Cuts and Jobs Act of 2017 allows for 100% bonus depreciation on commercial real estate investments.

Investors must also consider local zoning laws and regulations, which can impact the use of a property.