Can investors compete with multi-billion-dollar funds?
Co-star recently reported that Blackstone Group out of New York just launched a $5 BILLION distressed debt real estate fund in hopes of capitalizing on assets affected by the lack of liquidity due to COVID-19.
Am I personally worried about competing with a $5 billion dollar fund? Should you be worried as an investor looking for quality assets?
My answer is NO and here are a few helpful thoughts to hopefully make you a better investor as well.
These dollars are what I call “institutional money.” Meaning they don’t come from the average investor and are only out to serve those on Wall Street.
These investment dollars come from other large institutional funds or family offices. In almost all cases, these funds are chasing the same thing: large, very straightforward, low–risk assets in tier–one cities.
The reason why I am not worried about competition from this fund and other funds like it is because we don’t chase after the same treasure.
There are still PLENTY of opportunities as a smaller firm or single investor to create tremendous wealth through real estate IF you are willing to go the extra mile.
For example, our firm buys properties that serve our network of investors. Our investors are business owners, entrepreneurs, and high–income earners who are looking for a reliable, predictable, long–term vehicle that can consistently produce a return higher than the stock market.
To achieve that for our investors, we put in the extra work that these large funds are not willing to do. For example,
- Travel to cities that require a connecting flight
- Talk with small mom–and–pop operators who are tired of managing the property
- Look for value-add opportunities like properties that have been poorly managed or in need of cosmetic repair, which ultimately allows opportunity to drive value for investors over the long term.
These large institutional funds are not willing to do these “extra mile” tasks. Heaven forbid they might have to purchase an economy class ticket on a connecting flight.
Find deals by doing the “extra” work: The best place to start is in your own backyard. This is where you have the most connections and can meet face to face with property owners and vendors. If you are a passive investor, find sponsors that are well connected in their target markets.
Adding commercial real estate to your portfolio might be a good idea: U.S. commercial real estate has continued to prove to be a very strong and predictable asset class even in a recession. Big money and foreign money IS chasing after it hard. This should be a sign for you as well that owning some of it in your portfolio might be a good idea.
Opportunities still exist for you to invest: Even though we may see a historic amount of money being placed in commercial real estate over the next few years, GREAT opportunities are still out there for those who are willing to put in the extra work.
Ellis Hammond is the managing principal for SymphonyCapitalGroup.com, a San Diego based investment firm focused on helping private investors build a more predictable wealth building strategy through multifamily real estate. He is a well sought out speaker on the topic of multifamily and faith-driven investing. He also hosts a weekly podcast show for Christian investors called Kingdom Capitalists.