One of the biggest challenges from the real estate side of the equation is getting access to high-net-worth investors (HNWI) looking to make allocations to the sector.
“Access is through intermediaries who often are reluctant to invest with newer sponsors,” one respondent wrote. “Also, the huge amount of capital being invested with a small number of big name firms (Blackstone, Starwood, etc.) makes it difficult to compete.”
Another respondent talked of the “layers of advisors” that you have to work through, most of whom are “not fully conversant in the intricacies of commercial real estate.”
Another obstacle is that it can be difficult to find investments that fit what HNWI are looking for. They often want low-risk, high-yield plays, which are difficult to come by given the intensely competitive investment landscape for real estate assets.
Respondents also pointed to the need to educate HNWI on some of the nuances of playing in the commercial real estate space, getting them to understand the basics of real estate investment, rates of return and illiquidity.
“They understand (or at least think they do) equity investments, but many do not have the experience or patience to understand complex real estate transactions,” one respondent wrote. “For example, [they don’t understand] why they can’t take their money out six months after they invested.”
Another respondent wrote that real estate professionals working with HNWI must ensure there is “a comprehensive strategy and understanding of both what the real estate is intending to do, and how it knits with the overall portfolio.”
“Many HNW investors have acquired their real estate assets … on an opportunistic basis, with little regard to how it meets their family objectives,” the respondent noted.
The plus side to working with HNWI, however, is also substantial. For one, they represent a large and growing pool of capital. Moreover, given that investment decisions are made by an individual or a small group in a family office, there can be greater speed and certainty of deal completion when deal objectives are clear.