THE OPTION OF REAL
ESTATE INVESTMENT TRUSTS
Real Estate Investment Trusts (REIT) may be a viable
redeployment alternative that might satisfy many foreign
investors’ desire to participate in the real estate market.
Redeploying directly to a REIT may be of mutual benefit
to both parties. REITs can be either public or private and
each type should be considered separately.
Public REITs include many of the same concerns as
public equities, including market and business volatility.
Additionally, given that interest rates expected to rise and
cap rates are at near-historic lows in some areas, shares
could come under pressure in the form of deploying
capital into low cap rate deals, meaning that effective
property values could decrease should interest rates
go up. The benefit of a public REIT is liquidity; although
investors must be aware that a number of smaller
publicly traded REITs may be too small for large scale
investments.
On the private side, finding a REIT that can use debt
capital on a short-term basis, with timelines matching
those of NCEs, may be challenging as this asset class
often relies on long-term capital investment. The benefit
of a private REIT is that volatility is muted and managers
may be more inclined to add value and therefore be
more selective and strategic in deploying capital into
various properties that offer value–add or opportunistic
circumstances, which can offer a higher return.
ALTERNATIVE INVESTMENTS
IN PRIVATE MARKETS
Alternative investments, most notably private markets,
present another interesting type of redeployment
opportunity. In recent years, the private markets have
spawned a number of investment firms run by industry
veterans that focus on value-added methods of capital
deployment.
By way of example, in the research conducted for this
article, the authors have come across several investment
management firms that deploy debt capital to stable
businesses with strong balance sheets to finance cash
flow needs for growth or specific near-term events. Many
of these investments are significantly collateralized
and therefore present some very strong risk mitigation
benefits. Several of the teams explored had surprisingly
strong and consistent return records.
Private market investments are well positioned to meet
program requirements and offer a number of benefits,
including potentially less volatility and higher returns
than comparable public markets. These investments
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