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How Can Wealth Advisors Remain Relevant in Commercial Real Estate's DIY Era?

By using their expertise and knowledge to guide Millennials in the right direction

By Bill Florent

With the oldest Millennials now in their mid-30s, many are well on their way to significant wealth accumulation. In fact, as of 2014, an estimated 5 million were already millionaires. As witnesses to two large-scale stock market sell-offs, this generation is especially motivated to minimize future financial hardship. In fact, according to a 2016 CUNA study, 94 percent of Millennials are interested in learning more about investing. They are eager to combine their tech-driven DIY efforts with guidance from wealth advisors. 

While this is good news for advisors, it requires them to assume a more analytical role when it comes to alternative asset classes such as commercial real estate.

A New Era of Accessibility

In the past, CRE investing was a paper-driven pursuit dependent upon personal connections with building sponsors. Because it was such a high-touch process, sponsors preferred dealing with as few investors as possible, so they would typically set the minimums for investment at $250,000 or higher.

Between a lack of personal connections, a high barrier to entry, and an overall absence of public-facing information regarding single-asset investing, young, aspiring investors were more or less excluded from CRE deals.

Advisors, too, were hamstrung by this limited access. If they didn't have personal connections with building sponsors, they relied upon publicly traded (or non-traded) real estate investment trusts when including CRE in their clients' portfolios.

Today, thanks to the JOBS Act, investors and advisors have been granted online access to several asset classes that were previously beyond their reach. This includes single-asset CRE investing. Technology-driven platforms have emerged to provide a wealth of options and relevant data to empower smart decision-making. 

Further, property sponsors can now reach thousands of people at a time and easily offer them digitized paperwork through these platforms. As a result, entry points are far more affordable—within the ballpark of $25,000 to $50,000.

In this transparent, tech-driven era, Millennials have become 10 times more likely than Baby Boomers to be active on digital investment platforms. But the question remains: How can wealth advisors remain relevant and continue providing value in this DIY-friendly climate? 

Transition From 'Whom You Know' to 'What You Know'

Especially when advising young investors, CRE's changing environment means advisors must transition from facilitating relationships to providing expertise. Even with access to extraordinary amounts of information and options, investors still need experts in research and analysis to sort through potential deals and construct healthy portfolios.

For advisors, it will be crucial to build knowledge within these three realms:

  • Understanding Various Investment Structures and Opportunities
    Advisors will provide immense value if they can identify which specific investment structures and options are best suited to a young client's risk tolerance, liquidity needs, and long-term objectives. For some clients, REITs may still be the most appropriate option. The challenge, however, will be learning how to confidently make that determination. When researching REITs, the focus is on the overall attributes and performance of each trust. Assessing a private placement, on the other hand, is a more complex endeavor. For example, advisors must understand how cash flows differ among retail strip centers, office buildings, and apartment complexes. Further, they must learn how to compare the merits of an income-focused triple-net lease investment with an appreciation-focused development opportunity.
  • Digging Through the Details
    Even with massive amounts of data at their disposal, Millennials will still need assistance analyzing what all these numbers mean. To the untrained eye, tenant information, occupancy rates, lease terms, ongoing capital improvement needs, and market analysis data can be difficult to comprehend.
    Advisors can step in and play this role, helping young clients understand everything from a sponsor’s performance history to the attributes of each asset he or she has listed. Furthermore, knowing how to read and analyze dense cash-flow statements and pro-forma statements for single-asset investments will go a long way.
  • Connecting the Story to the Strategy
    Beyond hard data, there is a story behind every investment opportunity that needs to be evaluated. Being able to connect the story the sponsor is telling to an investment strategy is another area where advisors can add value. Specifically, advisors are well-suited for wading through the “brochure language” to isolate information on investment philosophy. This helps shed light on why the sponsor owns what they own, what the plans are for each property, and why investors are being brought in at this point. The end goal is to find evidence that the sponsor’s strategy aligns with the client’s objectives and income needs.

Millennials are naturally seeking out tech-based solutions for investing. However, even if they are comfortable doing things for themselves, they will still require and appreciate expert counsel along the way.

When it comes to CRE investing, the opportunity to provide such expertise makes it well worth the effort, especially given the attractiveness this asset class has to younger investors and new online platforms available to advisors and investors. Millennials are happy to tolerate the long-term time horizons required to invest successfully in this area.

With a wealth advisor’s help, that success is much more likely.


Bill Florent, co-founder and CFO of Selequity, an online private placement platform for commercial real estate investment.


TAGS: Real Estate
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