• Sun. Aug 7th, 2022

How do private equity real estate investments compare to REITs?

ByWillie M. Evans

Mar 22, 2022

Real estate investment trusts (REITs) have always been one of the only options available to individuals to invest in commercial real estate, since private equity investments have traditionally been limited to institutional investors.

However, a series of regulatory changes over the past decade have changed that. Retail investors now have access to a wide range of passive real estate investments outside of publicly traded REITs and other real estate-related stocks.

However, REITs have performed well for investors over the past 20 years. The FTSE Nareit All Equity REITs Index outperformed the S&P500 in total returns over 13 of the past 20 years with an average annual total return of 13.1% versus 11.1% for the S&P 500 over the same period.

Does it really make sense to invest in private equity when public markets are already producing strong returns?

Total returns

Based on Benzinga’s data on the average returns of major real estate investment platforms, private equity real estate has produced average total annual returns ranging from 17.4% to 25.56% over the past 9 years , compared to an average total return of 12.42% for the FTSE. Nareit All Equity REIT Index.

Of course, there are some important factors to consider when comparing these two types of investments.

Data available

Data available on private equity returns is limited. Returns are calculated based on data reported by the sponsors of a small handful of companies against publicly available information from the index which currently includes 156 companies.

Liquidity

Publicly traded REITs also allow investors to enter and exit the market as liquidity needs change, while private equity investments can have minimum investment terms ranging from three to 10 years.

However, real estate is best suited as a long-term investment, whether through publicly traded REITs or private equity investments. Limited liquidity options actually help keep the real estate market more stable relative to the stock market, as panic cannot lead to a sell-off in the short term.

Investment Options

Private equity investments through platforms such as CrowdStreet allow investors to choose specific transactions to invest in rather than having to analyze the prospects of an entire REIT portfolio. However, the options are not limited to specific offers. Most platforms have also run private equity funds that allow investors to diversify across multiple properties.

The minimum investment required to access private equity real estate is often significantly higher than the minimum required to purchase shares of a publicly traded REIT. Private equity real estate platforms typically have minimum investments starting at $25,000.

However, a third option is becoming increasingly popular; unlisted public real estate offers. A few new platforms offer real estate investments through Regulation A+ offers to non-accredited investors.

For example, Arrived Homes sells shares of rental properties with a minimum investment of just $100. Other companies, such as CalTier Realty, offer real estate funds with minimum investments between $500 and $1,000.

What is the best option?

The simplicity that comes with buying and selling publicly traded REIT shares makes it a logical option for most investors. However, those looking for higher potential total returns and who are willing to commit to longer-term investments would do well to explore private equity and non-traded real estate investments.

You can access a variety of private equity and regulatory A+ real estate offers through Benzinga’s real estate offers filter and filter opportunities based on your personal criteria.

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