Behind stocks, bonds and cash, commercial real estate has emerged as the fourth largest asset class in the U.S. over the last few decades. Among institutional investors, investments in commercial properties represent nearly 10% of their holdings.
When you look at the typical individual investor’s portfolio, however, there’s often a big hole where commercial real estate is concerned. In fact, for many investors, this particular asset class is a relative unknown. Previously, stiff barriers to entry meant that direct commercial real estate investments were only available to a select group. Fortunately, real estate crowdfunding is making it possible for a broader base of investors to gain access to this valuable segment of the real estate market.
Commercial Real Estate Explained
In the simplest sense, commercial real estate is any property that’s designed to produce income. That covers everything from apartment complexes and office buildings to shopping malls and industrial complexes. Commercial properties generate income in the form of rent paid by tenants and/or appreciation when the property is sold. Investors realize returns based on the property’s income, less any operating, financing and maintenance costs.
Where Does Crowdfunding Come In?
Historically, commercial real estate investments were the exclusive domain of private investors who had the right connections and could afford a five- or six-figure minimum buy-in. Some of the largest institutional investors in the world (including the Harvard and Yale Endowments) have sizable portions of their portfolio allocated to real estate and this has been a major factor in their superior investment performance. Unfortunately, individual investors have historically been excluded from this potentially profitable asset class.