The nuts and bolts of private commercial real estate investing

REAL estate investing means different things to different people. It can be shorthand for buying a rental property – taking out a mortgage, finding a renter, and hoping to clear the monthly cost while the asset appreciates. It can also mean buying shares in a public real estate investing trust (Reit), the kind that has been around for decades and is accessible through most brokerage accounts.

But real estate as an asset class is much more diverse than that. Broadly speaking, commercial real estate (CRE) may refer to many different types of property, investment theses, and risk/return profiles. Fintech-enabled investing has made private-market CRE as accessible as stocks and index funds, albeit at a higher minimum investment. Indeed, private-market CRE investing and Reits also both offer the benefit of (divisible) passive investing – no “tenants and toilets”, as they say.

What is CRE investing?

CRE is any real estate investment or transaction undertaken by a professional investor. The term “commercial” can also denote multi-tenant, including multifamily. Because of CRE properties’ size and operational complexity, these transactions tend to involve multiple parties and offer alpha opportunities. In principle, two factors drive CRE returns: rent and appreciation. Hence, CRE is one of the few asset classes that can deliver both solid cash flow and solid total return potential.