Ian Formigle, Chief Investment Officer at CrowdStreet, joins Cheddar News to discuss why investors should consider commercial real estate investing, how crowdfunding in real estate works, and how people can get in on the action.

Closing Bell

 Why Investors Should Consider Commercial Real Estate Investing

Welcome back to closing bell on cheddar news. Everyone this segment is brought to you by crowds street. The real estate investing platform was sought after private equity real estate to diversify your personal portfolio all online, while investing in commercial real estate can be a positive way to diversify your portfolio, investors can fund all sorts of real estate like apartment buildings, hotels or industrial parks to name a few of the many opportunities that are out there. But breaking into this type of investing isn't always easy or accessible for a single investor. And joining me now to discuss everything you need to know about commercial real estate investing is ian formidably chief investment officer at crowd Street. And it's great to have you. Why should investors should, why should they consider commercial real estate investing? Well, first kristen thanks for having me on the program. It's a pleasure to be here. And so when we talk about why investing in commercial real estate. Well, I think there's a lot of reasons but three in my particularly stand out. I think it just for starters, so when we begin to think about it, the first thing that I think it's helpful for investors to understand is just the size of the commercial real estate market, It's the third largest asset class after bonds and cash. Various groups will value commercial real estate globally at about $300 trillion. And then when you think about who invests in it, you're going to see that the most sophisticated investors in the world regularly invest in it. The likes of sophisticated endowments like Harvard and Yale and Princeton, when you look into their portfolios, they always have direct commercial real estate, you know, investments within those portfolios and it's part of what helps them earn great returns over multiple decades. And so for starters, when you think about the size and just kind of the ubiquity of what's going on out there in commercial real estate. To me, the answers start or the question really becomes why not? Instead of why? So I think just framing it for starters helps, you know, the second thing about commercial real estate is as an investment, it's something that's tangible and it's logical and we can relate to it as individuals. We live in a world of real estate every day, we live in it, we work in it, we, we live, you know, we shop in it and we play in it and so I think from that perspective, you know, when a lot of investments out there, it's hard to sometimes understand what truly underlies your investment and what drives the profitability of it. Uh in comparison, real commercial real estate is relatively easy to understand. You can, you can see it for example, you can travel to cities like Austin and Nashville, you can see how those markets are growing and changing and you can decide to be a part of that through, you know, as you just mentioned through the specific investment into like one multi family complex, you know, an apartment deal in downtown Nashville for example. So I think that that resonates with investors. Um, you know, The 3rd part about it is just, you know, when we, when we think about the third part is that the text advantaged aspect of investing without going into too many details about it. You know, commercial real estate is something that is a physical asset and that means it can be depreciated on an annual basis. And so from that perspective, as an investor in it, it's possible to receive your share of depreciation of of that physical asset, which really what that means is that sometimes, and we see what we see on our marketplace Is that investors will receive positive cash flow, maybe a 5-6% annualized yield on an investment, while at the same time they receive at the end of the year a taxable loss. And what that really means is that we'll get recaptured in the form of the capital gang down the road. But the longer you hold the real estate, the longer you defer that tax consequence. And so in essence, I'd say that's one of the reasons when you look to really wealthy families across the United States, the ones that have multiple, you know, multi generational wealth, you will see that commercial real estate is pretty present in almost every one of those portfolios because it's a really powerful way of investing on an after tax basis. So there's a lot of reasons, I guess that at three, there's certainly a lot of reasons to get on board. I know the last two years have been an interesting time for the public markets to say the least. What impact have you seen this have on commercial real estate investing? Well, sure. Yeah, the last two years in the markets have been a pretty phenomenal ride. I mean last year was, was a big write up and a little bit, not so much this year. What we saw last year in commercial real estate was a similar phenomenon to the market in terms of a lot of demand. Uh C. B. R. E, for example, put out a report that showed that $746 billion was invested into commercial real estate just last year in the United States alone. And that was an all time record. Now when we think about the differences between commercial real estate and public markets, it is that private to public-market difference. So now when we think about 20, a year in which there is a lot of, you know, short term headline risk. Well, now that's where commercial real estate starts to look different because in essence, when we invest today into a project, we're making a multi year investment, we're trying to buy a property or build a property and sell it sometime later this decade. And so what that does is it just changes the frame of the context of what you're doing and it spreads out that investment over time and it, and it kind of diversifies you away from that roller coaster of day to day headline risk. So just like a different way of thinking about investing. Um, Ian breakdown for me quickly, how crowdfunding and real estate works and how people can get involved. Sure. So crowdfunding and real estate really, what it looks like is it looks like large numbers of individuals in a single project. It looks like hundreds across our entire platform. It looks like tens of thousands and they come together to invest into either a single project, a single apartment complex somewhere or shopping center on or a fund at crowd street. And then by grouping together, they're now taking down and acquiring a institutional piece of commercial real estate. Now, historically speaking, institutional quality, commercial real estate, it's capital intensive, it needs 20 to 30 or $40 million per transaction just to acquire one piece of property in the past that was harder to do. But in recent years, through the advent of legislation and now technology and platforms such as ours, those hundreds of investors and thousands of investors all over the country. Now they can come together and they can group there equity and now they can acquire that individual piece of kind of trophy property in the center of the city. So that's just kind of different from what it used to be before, but that's why we created a marketplace and why the individuals are seeing attractive investments across our platform is certainly a good case for investors, potential investors, ian to get involved. Thank you for the time. That's IAN, formidably chief investment officer at Crowd Street.