Raising Capital for Commercial Real Estate Investments
There is a lot of activity going on in Salem and the valley in commercial real estate. I’m surprised when people come up to me expressing a desire to get involved and possibly purchase an office building or lot but are sure they won’t have the cash. While these can cost a chunk of change, there are ways to get around financing everything on your own.
Many people, when they invest in commercial real estate, think in terms of having to come up with all the money that’s necessary to buy the property on their own. But there’s a different approach that’s also being utilized, and it’s being implemented by some of the most sophisticated commercial real estate investors in the world, as well as by smaller, more entrepreneurial investors, too.
This approach involves raising money from people or entities that have the money to invest, but they may lack the detailed understanding of commercial real estate investing, and they’re looking for someone who has that expertise to guide them.
Pension Fund Owners
Pension funds are a perfect example of this. They can have many millions of dollars that need to be invested, but the people in charge may have very limited knowledge of how to invest it. So, in this situation, the people who run the pension funds will partner with knowledgeable investors, who have solid experience at investing in commercial real estate, and then these two entities will share in the profits.
So as an example, a pension fund might make $100,000,000 available to invest along with the partners that they have chosen, then the partners will invest the money, and the two entities will then share in the profits, which can sometimes then be divided 50-50. The pension fund has the money, the partners have the expertise to maximize the returns, and then the two of them can oftentimes do very well together.
Now on a smaller scale, an entrepreneur can raise hundreds of thousands or millions of dollars from investors, find one or more great properties to invest the money in, and then the entrepreneur can share in the returns, sometimes without ever putting any money of their own pocket into the investment. So, the entrepreneur can then receive a percentage of the ongoing net income from the investments, and/or receive a specific percentage of the profit when the properties are sold.
Typically, the investors putting up the money for these kinds of entrepreneurial investments are generating good money from their own businesses, but they lack the expertise at investing in commercial real estate. Think of high-income earning local business people.
So, either way, if you’re the person who’s got the money to invest, connecting with someone who has commercial real estate expertise could be a great opportunity for both of you. While at the same time, if you’re the one with the commercial real estate expertise, finding the people to invest their money through you could be a great and profitable venture for you to pursue.
On a personal note, I’d like to welcome Kelsi Sands, who will be working with me as an executive assistant. She’s a lifelong Salem resident, recently graduating from Western Oregon University with a Bachelor of Science, majoring in Business Administration.
Alex Rhoten is the Principal Broker at Coldwell Banker Commercial Mountain West Real Estate at 503-587-4777 or cbcre.com