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What Is Middle Market Private Real Estate Investing and Why Should You Care?

Blog, FAQ, Resources

Nothing in this blog is or should be construed as investment advice or an offer or solicitation of offers of investments. Both Real Estate Investments and Securities offerings are speculative and involve substantial risks.  Consult with your legal and investment professionals prior to making any investment decisions. All Securities are offered through North Capital Private Securities, Member FINRA/SIPC.

For some investors, private real estate investing can be a great way to generate returns without needing a large amount of capital. Often considered to be more opportunistic and entrepreneurial than real estate investment trusts (REITs), middle market private real estate investing can provide investors with the potential for attractive risk-adjusted returns through active involvement by investment managers (“Sponsors”).

What Is Middle Market Private Real Estate Investing and Why Should You Care?

If you’re looking for an investment that has the potential to generate healthy returns with less volatility than many real estate investment trusts (REITs), then middle market private real estate investing may be right for you.

Middle market private real estate investing is a process of investing in real estate that can provide investors with the potential for attractive risk-adjusted returns through active investment manager involvement. Middle market private real estate investing is more opportunistic and entrepreneurial than investing in REITS, which typically pay high prices for large, stabilized properties in gateway markets. The middle market by contrast is made up of sub-$100M properties that are often found in a variety of stages (high vacancy, deferred maintenance, new construction, leasing up, stabilized, etc).

If you’re considering investing in the middle market private real estate space, it’s important to understand the risks and potential rewards involved.

Here are some important things to know about this type of investing:

The Benefits of Middle Market Private Real Estate Investing

  1. Investing in middle market real estate may provide investors with the potential for attractive risk-adjusted returns through active involvement by the investment Sponsor.
  2. The process of investing in this market segment is often considered to be more opportunistic and entrepreneurial than investing in REITs.
  3. Middle market Sponsors’ use of capital has the potential to be more efficient than investing in larger, publicly-traded real estate companies that have more complex, bureaucratic organizational structures.
  4. Investors can gain access to a broader range of real estate opportunities than can be found in the public markets and can customize their real estate portfolios to their specific needs and goals.

The Risks of Middle Market Private Real Estate Investing

  1. Middle market real estate is a more speculative and risky investment than REITs, which typically focus on large, liquid gateway markets.
  2. The investments are not insured or guaranteed, which means that investors could lose some or all of their capital.
  3. They are relatively illiquid investments, which means that investors may be required to hold their investment for a long period of time and will usually have little control over when to sell and exit an asset.
  4. There is often a lack of transparency (and sometimes honesty) amongst middle market Sponsors, which can make it difficult for investors to assess the risks and potential rewards of an investment with a particular Sponsor.

How to Get Started in Middle Market Private Real Estate Investing

If you’re looking to get started in middle market private real estate investing, there are a few things you need to know. First, it’s important to understand what this type of investing entails. Due to the extensive use of leverage, investing in middle market private real estate has the potential to generate attractive returns without the need for large amounts of capital, respective to the total value of the underlying asset being purchased. Consequently, the use of leverage is inherently risky and can increase the risk of loss to equity investors. Middle market private real estate investing is also considered to be more opportunistic and entrepreneurial than REITs, and requires active and competent Sponsor management in order to be successful.

If you’re interested in pursuing this unique investment strategy, there are a few steps you can take to get started. First, do your research and learn as much as you can about this type of investing. There are a number of resources available that can help you understand the ins and outs of the industry. Second, develop a personal investment philosophy and identify your target markets. Third, talk to your trusted professional advisers and make sure you’re financially prepared to begin investing in middle market private real estate. Once you’ve done your research, developed a plan, and are financially prepared, you’ll be ready to start actively pursuing middle market private real estate opportunities.

Middle market private real estate investing can be a great way to seek non-correlated returns vis-a-vis your other investment strategies. It is important to do your homework and understand the risks involved before getting started. By taking the time to educate yourself about this type of investing, you’ll be in a better position to succeed.

Conclusion

The benefits of middle market private real estate investing include the potential for returns that are not correlated to public markets, more efficient deployment of capital, and broad access to a diversity of asset classes, markets, and investment strategies. The risks associated with this type of investing include but are not limited to the need for active management, the lack of transparency with Sponsors, the risks associated with illiquidity, and capital loss risks. For those looking to get started in middle market private real estate investing, begin by speaking with a financial advisor or experienced investor. With careful planning and execution, middle market private real estate investing can be a great way to seek entrepreneurial, risk-adjusted returns.

About Fairway America

Fairway America is a leading alternative investments manager focused on middle market commercial real estate. Established in 1992, the company specialize in real estate credit and private equity strategies on behalf of individual and institutional investors. As of Q1 2022, the firm manages more than $315 million of investor capital and a portfolio of assets representing more than $2.2 billion in gross asset value across several major property types. For additional information, visit www.fairwayamerica.com.

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