DIRECT INVESTMENT IN COMMERCIAL REAL ESTATE ATTRACTIVE FOR INVESTORS

March 17, 2015

Commercial real estate is gaining popularity as an investment option due to current market conditions. As investors seek to diversify their portfolios amid global economic uncertainty and spotty stock market returns, lower interest rates and the potential for steady rental income makes investment in office buildings, apartments communities and other commercial properties attractive options.

Commercial real estate’s relatively stable and steady income stream can help offset other, more risky investments. Financial advisers recommend adding real assets to an investment portfolio to help mitigate risk. In previous newsletters, we have highlighted how real estate stacks up against stocks and we have discussed why CRE investment is a hedge against inflation. Today, we dive a little deeper into how to invest.

“These days, amid low interest rates, an increasingly expensive U.S. stock market and choppy global economic growth, other financial advisers are looking to commercial real estate to boost returns for clients and diversify their portfolios,” wrote Anna Prior in a February 25 Wall Street Journal article.

Benefits of direct investment in CRE

Investors could access commercial real estate through a fund, such as a real-estate investment trust (REIT), but Prior reports that financial advisers have seen a demand for direct investment from clients who want the ability to inspect the property personally.

“Clients wanted to touch and feel the asset, they wanted direct exposure” Big Sur financial adviser Rafael Iribarren told the WSJ.

He went on to tell the publication that his clients like having more direct influence on decisions made regarding the property, and they prefer to be selective in the types of properties they add to their portfolios. With REITs, investors do not have control over which properties are included in the funds.

Investopedia likewise spelled out the advantages of direct real estate investment in a recent article, including greater control over the property, lower tax burdens and potential for much greater returns.

“Like any investment, the more money you invest, the more money you can earn. So by putting down $100,000 on a property, you’ll likely earn more than a REIT investor putting $1,000 into a real estate investment,” reports Brian O’Connell in the article.

BiggerPockets, a real estate investment blog, points out the large disparity between REIT and direct-investment returns and calls REITs “poor cash flow investments.” Later, the author also calls them “volatile” and writes that, at one point, REITs dropped 60 percent in value while the NCREIF property index fell only 15 percent.

The BiggerPockets blog cites 2-5 percent returns from REITs vs. 12-20 percent returns from the author’s direct investment in mobile home parks. At PointOne Holdings’, we target an annual investor return of 12 to 17 percent on our portfolio of office and multifamily assets.

The blogger concludes:

“If you’re looking to make a passive real estate investment to help hedge your stock and bond portfolio, you should look to make direct investments with reputable sponsors. Your portfolio should benefit from reduced volatility (without a corresponding decline in potential returns) and meaningfully higher before and after-tax cash flow returns.”

In an article for Forbes, investment manager Kenneth G. Winans lists REITs along with hedge funds as poor investment options for people looking to diversify their portfolios, writing, “Hedge funds and nontraded REITs are two favorites of the investment salesmen who tout diversification. The former are sold as go-go high-octane vehicles and the latter as supersafe dividend plays with zero volatility. On average, both perform poorly over time.”

The PointOne investment option

PointOne Holdings’ business model provides another option to would-be real estate investors who want the benefits of direct investment in commercial real estate, but do not want the headaches of purchasing and managing a property themselves. We provide a platform for investors to own direct shares of a property, but we handle the purchase, capital improvements and ongoing management of the property.

In addition, we seek out distressed properties that offer greater potential for income growth. Once we purchase a multifamily or office property, we proceed with renovations and upgrades that will help attract high-quality tenants and command higher rents.

To learn more about our portfolio and investment opportunities, visit us at www.pointoneholdings.com.

200 South Park Road | Suite 301 | Hollywood, Florida 33021 | pointoneholdings.com

What Differentiates Us?



PRINCIPALS ARE INVESTORS

Company principals invest in all its deals and are directly involved on a day-to-day basis, executing the firm's vision with a methodical, entrepreneurial, and owner/operator approach
SPEED AND FLEXIBILITY

Speed and flexibility of a small company with the operating systems and sophistication of a large organization
ANALYSIS OF EVERY DEAL

Extreme and thorough analysis of each property prior to purchasing, obtaining comprehensive direct local market knowledge and utilizing sophisticated proprietary investment modeling tools
OVER $1.9 BILLION IN INCOME-PRODUCING REAL ESTATE TRANSACTIONS

Company principals are seasoned real estate professionals who collectively have executed in excess of $1.9 billion in real estate transactions
RESPONSIVE AND PROACTIVE CULTURE

Strong work ethic and extremely responsive and proactive problem-solving culture that leads to creating successful deals
STRONG CASH FLOW

Delivering to its partners and investors best in class real estate products with strong and consistent cash flow and long-term appreciation while preserving capital and minimizing risk

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