With options that include REITs, ETFs, private real estate funds, fractional investments and other structures, there’s no shortage of ways for accredited investors to access commercial real estate. But it turns out there are some disconnects between how commercial real estate professionals and wealth advisors perceive accredited investors’ activity in the marketplace.
To gauge this sentiment, WMRE and WealthManagement.com surveyed more than 400 wealth advisors and commercial real estate pros on their perceptions of accredited investor activity.
Commercial real estate professionals estimated greater average shares and dollar values dedicated to real estate when it came to accredited investors’ portfolios. While both financial advisors and commercial real estate professionals estimated a median of $6.3 million in investments dedicated towards the sector, the estimated retail investor mean identified by financial advisor respondents was $11.0 million vs. $23.2 million for commercial real estate pros. Similarly, while financial advisors estimated that about 14 percent of retail investors’ portfolios was dedicated to commercial property, real estate pros estimated nearly twice that amount, saying 25 percent of portfolios was allocated to the sector.
In addition, while both financial advisors and commercial real estate professionals agreed that allocations to income-producing property were not decreasing, they disagreed on whether allocations are rising or remaining stable. In all, 47 percent of financial advisors said accredited investor allocations to commercial real estate are rising while 48 percent said they were flat. Meanwhile, 76 percent of commercial real pros said such allocations were rising and just 21 percent said they were flat.
Another disparity between the two survey groups is the perception of what types of investment vehicles accredited investors are most interested in. Wealth advisors pointed to real estate ETFs as the most popular option, followed by private equity real estate funds and publicly-traded REIT shares. Commercial real estate professionals, meanwhile said direct investment in physical, multi-tenant real estate was the most popular vehicle, followed by direct investment in single-tenant assets and private equity real estate funds.
Similarly, the two groups were divided on what property types accredited investors are gravitating towards. Commercial real estate professionals pointed to multifamily and industrial/logistics as by far the two most popular types. In all, 79 percent of commercial real estate respondents said accredited investors prefer multifamily assets and 74 percent said industrial/logistics. (Respondents were allowed to select more than one property type.) The commercial real estate audience also pointed to self-storage (46 percent) and medical office (38 percent) as the next two most popular options.
Wealth advisors, however, provided a more balanced breakdown. Multifamily still came out on top, but only 51 percent of advisors said it was a property type preferred by accredited investors. It was followed by industrial/logistics (44 percent) and self-storage (42 percent). Financial advisors also pointed to data centers (39 percent) while only 22 percent of commercial real estate pros selected that property type.
Another distinction between the two groups was that commercial real estate respondents said accredited investors have preferences for primary markets (over secondary and tertiary) and core and core-plus opportunities (over value-add, opportunistic and distressed), while financial advisors had a more uniform response to market types and pointed to opportunistic assets as a preferred investment type over core or core-plus.
A point where the two audiences did agree, however, is both said that the typical returns that accredited investors are seeking on commercial real estate investments are in the 10 percent to 15 percent range.
These results are part of broader look at how commercial real estate pros and wealth advisors perceive accredited investor interest in real estate investments. A full version of the report will be published this spring.