Should commercial real estate investment be open to the masses?

For many years now the commercial real estate sector has been cast into the shadows with a limited client base, limited marketing and a whole range of regulations which seemed to be counter-productive. The situation in the US has changed over the last few months with the introduction of the Jumpstart Our Business Startups Act which has simplified the process of raising additional finance for real estate companies.

While this is most certainly a welcome change for the industry it does beg the question, why has commercial real estate investment been hidden away for so long?

Selling to experienced investors

Over the years there have been growing concerns about real estate investments which were sold to investors who were naive in some ways. In many ways this is what prompted the introduction of draconian regulations which effectively cast the industry into the shadows (for all but the wealthiest). In many ways the regulators erred on the side of caution preferring to be over protective as opposed to exposing those with limited knowledge to some of the more shady characters at the bottom end of the market.

We have all heard the stories of real estate scams involving properties which never existed, properties being sold to more than one investor and other similar situations. It is arguable whether the industry attracted more than its fair share of rogue traders but these were the ones that certainly grabbed the headlines.

New technology paves the away

It seems that the Internet and new technology have paved the way for a slight relaxation of the real estate investment regulations which will eventually open the market up to the masses. As we have seen on so many occasions, where the US leads the rest will follow and many experts believe this will happen.

However, it is also worth noting that real estate investment is an industry which thrives on human relationships, the transfer of information and is perhaps more personal than any other investment market.

Adding real estate to your portfolio

Historically it was very difficult for many non-expert investors to create a balanced exposure to the worldwide commercial real estate market due to the limited funds available for investment. The situation is changing, and the recent relaxation of regulations will help, with investors now able to buy a fraction of an investment as opposed to a whole development. This will ensure that for a relatively small amount of money investors will be able to pick and choose exposure to different commercial real estate developments perhaps in different markets or even different countries.

As we have touched on before, for many people real estate is the new “pension fund of tomorrow” with minimal returns on savings and annuities constantly under pressure.

Conclusion

For many years the commercial real estate investment sector was forced into the shadows due to excessive regulation and the stigma of scams and frauds of years gone by. This meant that relatively new real estate investors were unable to gain access to quality developments and therefore had to focus their property exposure in other areas. Thankfully, regulations across the US have now been relaxed and, as we have seen many times before, what starts in the US tends to travel to all areas of the globe.