The menu of options for placing relatively small equity investments in commercial real estate—which historically have been focused on vehicles like traded and non-traded REIT shares, mutual funds and ETFs—is continuing to get longer. And while the playing field is naturally larger for accredited investors, non-accredited investors are finding more ways to try and capitalize on the sector.
Commercial real estate is still a relatively illiquid type of investment. Buying and selling real estate is often complicated. Even broker/dealers and wealth managers used can get lost in the maze of regulations and procedures needed to move money into and out of investments
Making placements with real estate companies operating private funds has always been an option. But those have always been relationships that have come to fruition through real-world networking and a lot of pushing of paper. Now, especially with the pandemic continuing to curtail real world interactions, it’s a process that is being transformed by the adoption of technology. There is an ever-growing number of tools aiming to help bring together firms looking to raise equity with investors weighing their options and the wealth advisors and broker/dealers that can facilitate those placements.
Carter Multifamily, a private multifamily investor based in Tampa, Fla., is the latest example of a firm getting creative in how it is raising equity and attempting to tap into interest from investors looking to make smaller placements.
To that end, Carter is now part of the Alternative Investment Exchange, a platform seeking to facilitate buying, owning and selling alternative investments, including income-producing real estate.
“We take alternative investments and make it as easy to subscribe as it is to buy and sell shares in a mutual fund,” says Brad West, chief operating officer of Alternative Investment Exchange (AIX).
AIX, based in Philadelphia, creates customized systems that connect wealth managers with sponsors of alternative investments, such as Carter Multifamily. These systems create a process that includes the transfer agencies that work with the sponsors and the custodians used by many wealth managers. The system guides users through the regulated processes of signatures, documentation and compliance needed to make investments. “Each of these funds has their own document – usually 10 or 15 pages. It’s not intuitive,” says West.
For each investment sponsor, AIX’s 30-person staff of software developers and investment analysts creates a custom-made system that guides wealth managers through all of the forms relevant to investing. “We create an intuitive experience that naturally guides wealth managers through the document. It’s similar to TurboTax,” says West, citing the popular tax preparation software. “The investor doesn’t have to worry about the documents. We are de-risking compliance.”
Using the conventional way of sending and signing paper documents, it usually takes an average of about six weeks from the time an advisor initiates an order to completing the clearing and settlement of the order. With the help of AIX, Carter can now bring in capital from investors in as little as 72 hours.
AIX’s systems also cut down on costly mistakes. Alternative investments often suffer from a high rate of paperwork errors that can delay a transfer of ownership. AIX can prevent as much as 80 percent of these issues before they are even submitted for review, says West.
“With AIX, we can bring in capital faster than ever before, and the system has shown to drastically reduce cycle times between advisors and investors,” says Robinson. “Processing an order was previously a very laborious and paper-intensive process.”
AIX’s streamlined systems can also allow for smaller investments to make sense. “We can target the mass affluent,” says West. “Many asset managers are at as little as $5,000 per subscription.” Lowering the bar on investments may allow more investors to participate.
Carter Multifamily is focused on buying apartment buildings to renovate and increase the rental income from the properties. The firm is now up and running on the AIX platform and it has started the process of integrating a new fund into the AIX platform.
“We have empowered our representatives, enabling us to sharpen our focus on raising equity, acquiring assets, and more quickly seizing on available buying opportunities," says Lisa Robinson, president of Carter Multifamily, based in Tampa, Fla.
AIX currently works with 18 sponsors of various investors and 40 different funds, according to West. AIX has also created relationships with the vast majority of “transfer agencies” used by asset managers and has also formed relationships with nine leading companies that act as “custodians” for wealth management firms, says West.