Blog: Why Commercial Real Estate Firms Should Engage Financial Advisors

Commercial real estate diversifies investment portfolios.

Financial advisors regularly advise investors to diversify their investments to minimize risk and help them reach long term financial goals. Because future market conditions cannot be predicted, investing in a variety of assets reduces risk in investments portfolios.

Investors have the right idea and are already interested in a variety of investment opportunities. It is estimated that about a quarter of Americans identify real estate as their favored investment option for money not needed for a decade. Real estate investment is followed closely by cash while stocks and precious metals are in third place, tied at 16%. Only about 5% say that they are interested in investing in bonds. 1

Advisors want to diversify portfolios but many do not yet have plans as to how they will achieve that diversification. The 2017 Trends in Investing Survey showed that 47% of financial advisors are looking for new ways to diversify client portfolios. Another 6% of advisors are not yet looking to diversify portfolios but expect to soon. However, only about 8% of financial advisors said they will add alternative investments to their portfolios in the next 12 months. Alternatives are anything outside traditional stocks and bonds. 2

Commercial real estate is an alternative investment option that provides portfolio diversity from equities because its performance isn’t correlated to the stock market. Commercial real estate is a $7 trillion market in the U.S. 3 and often provides investors with attractive returns, steady cash flow, and appreciation. And real estate is a already identified as a favored investment option for investors. So, why aren’t more financial advisors recommending commercial real estate investments for their investors?

  • Many advisors and investors don’t realize that investors have options to invest in commercial real estate due to somewhat recent legislation, including the 2012 JOBS Act.
  • In the past, advisors only had access to real estate investment trust (REIT) for real estate investing. REITs traditionally have high fees, low returns, and their performance is correlated with the stock market which doesn’t provide the diversification that many advisors and investors are seeking.
  • Many financial advisors have limited experience working with real estate on a day-to-day basis. Real estate is a fast-paced, nuanced industry and many financial advisors haven’t received formal training on real estate. The result is that many advisors minimize the role of real estate as an investment option. 4

Why CRE sponsors should build financial advisor relationships.

Financial advisors are a somewhat untapped market for many commercial real estate firms. Commercial real estate firms and financial advisors have an opportunity to build mutually beneficial relationships with each other. The commercial real estate firm gains a new group of investors for fundraising. Financial advisors gain direct access to investment firms for commercial real estate opportunities and can provide their investors with more investment options and asset diversification. Win-win for all parties.

Ways commercial real estate sponsors can help financial advisors with real estate investing.

  1. Educate: Engage financial advisors with easy sources of education so they can feel comfortable offering their investors commercial real estate investment opportunities.
  2. Honor the advisor-to-investor relationship: Many investors value the personal relationships that they have built with their financial advisors and financial advisors won’t want to hand over their book of business. Build a financial advisor program that respects that personal relationship.
  3. Provide simple technology solutions: Technology is changing the financial services industry so you’ll want to provide your advisors with technology solutions for the future. In the next several years, it is expected that advisors who embrace technology will thrive and begin replacing the ones who are not. “The best advisors will fully embrace technology. Those who do not will go out of business. Adapt or die,” says Larry Miles, principal at AdvicePeriod in Los Angeles in What Will the Financial Advisor Industry Look Like in 2020? 5

CrowdStreet offers online financial advisor tools.

CrowdStreet’s platform has simple online tools for advisors that sponsors use to connect with and better engage financial advisors. The advisor module enables commercial real estate sponsors to respect the advisor-to-investor relationship by allowing advisors to join your private portal and invite their investors to join the portal, access offerings (including selected private offerings) and download all offering material. The software flags the investor as belonging to the advisor so that the direct relationship is maintained throughout the investment period.

Our technology also simplifies the communication and promotion of new offerings. Both the sponsor and advisor save time by promoting Private Placement Memorandums online to potential investors. The advisor tool is used to provide updated investment information to the investor throughout the investment period.

Want to learn more about CrowdStreet’s financial advisor module? Get in touch today.

Sources:

1: More Americans prefer cash or real estate to stocks  https://www.cnbc.com/2016/07/19/more-americans-prefer-cash-or-real-estate-to-stocks.html

2: 2017 Trends In Investing Whitepaper: Assessing and Allocating to Alternatives

3:  Real Estate Crowdfunding: Trends to Watch in 2018  http://realtybiznews.com/real-estate-crowdfunding/98745264/

4: Why Combining Real Estate Expertise with Financial Planning Is A Winning Combination  https://www.forbes.com/sites/brentgleeson/2016/11/19/why-combining-real-estate-expertise-with-financial-planning-is-a-winning-combination/#3574b4972460

5: What Will the Financial Advisor Industry Look Like in 2020? https://www.thestreet.com/story/14007152/1/what-will-the-financial-advisor-industry-look-like-in-2020.html

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