Hedge Fund
Serenity Alternative Investments Blog - Owning REITS In A Hedge Fund: The New Frontier
October 2019
Serenity Alternative Investments Blog - Owning REITS in a Hedge Fund: The New Frontier
The investing landscape has changed meaningfully over the last 20 years. Gone are the days of calling your broker to buy or sell shares or looking up stock quotes in the daily newspaper. In the modern era, you can invest in almost any asset class, across any global market simply with the click of a button. ETF’s have lowered the cost of diversification, and now technology is making all types of alternative investments available to high net worth individuals searching for new and novel ways to invest their capital.
So why has commercial real estate investing barely changed at all? Buying a single commercial building still requires working with a broker, signing reams of paperwork, and waiting for an extended period to close. Real estate funds have barely changed as well. Many still charge acquisition fees, only specialize in one product type, and carry leverage in excess of 50%, despite the disastrous consequences that ensued from such structures during the 2007-2009 period. Where is all the innovation in real estate investing?
The one pocket of commercial real estate that can claim a rising level of sophistication is the publicly traded REIT market. REITs have harnessed the benefits of technology to better fit investor needs while focusing on building sustainable, and investor friendly, corporate structures. REIT ETF’s provide low-fee diversification into high quality commercial real estate. They are also liquid and provide much lower levels of risk due to lower leverage levels than many private funds. For these reasons, REITs represent a step forward in the commercial real estate investing game and open the door for the most sophisticated of modern-day real estate investing products, the REIT hedge fund.
Combining REITs with a hedge fund structure unlocks an entire new world of possibilities within commercial real estate investing. There is no other structure that allows an investor to go long multi-family apartments while shorting shopping centers. Additionally, in the private market you can never buy a high-quality portfolio of New York office assets at a 20% discount to their private market value. A REIT hedge-fund can and is able to consistently capitalize on these types of opportunities.
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