Commercial real estate investment is a high-investment, high-return asset, which is beyond the scope of ordinary investors. Innovative investing has now influenced this sector too. The disruptive concept of commercial real estate fractional ownership has redefined this investment stereotype, bringing greater inclusivity for ordinary investors into commercial real estate.
We will talk about how fractional real estate investment is a game changer and creates a huge investment market on high-value commercial real estate spaces that are existing or being added every day. Commercial real estate is segmented across rent-yielding properties like offices, retail, industrial and logistics and hospitality, holiday homes etc. The fractional concept is helping owners to keep properties afloat when they cannot fully afford to maintain them on single ownership.
The concept of fractional ownership is quite interesting. This business model collects a pool of investors' funds. The collection leads them to purchase a property. While they are fractional owners of the property, they enjoy passive ownership of highly valued assets. The single-ownership financial burden is reduced, while investors enjoy a high return on investment from the commercial property. What was previously an HNI-dominated investment, has now been democratised through commercial real estate investment platforms.
Offering financial diversification, knowledgeable investors can add CRS to their portfolio to balance riskier stock investments. Fractional CRE investments will generate monthly to quarterly returns ensuring steady cash flow.
Special purpose vehicles (SPVs) are companies with limited liability forming a partnership with the property owner and raising equity on the property. They distribute the holdings based on the value and nature of the property. Inviting co-ownership from multiple shareholders who invest in the property, these investors can invest at smaller tickets to own a fraction of the real estate and earn an average of 10% rental prorated yield and share profits when the property is sold.
Once investors invest, they are given equity and compulsory convertible debentures (CCDs) for the portion of their investment through the SPV. The investor is given documented proof of their investment on the listed property of the SPV upon registering to the platform. Since this is an emerging investment platform, the company is regulated by the Companies Act of 2013 with RERA facilitating this investment. The investor's interest is guarded by a trustee company, providing custodianship as a trustee, through escrowing accounts. Mostly predetermined, rental yields range from 8-12% annually.
This accelerated digital transformation has created another diversified investment avenue for tech-savvy investors. The investor has access to grade-A commercial assets with SPV due diligence. The concept has been successful in developed economies. Fractional ownership in commercial real estate is making steady progress in India.
How Is Fractional Investment Doing Better Than REIT?
Both fractional and Real Estate Investment Trust (REIT) models have opened investment opportunities for small investors on premium commercial properties. While REITs are more like mutual funds where the investor funds a set number of assets selected by the REIT. The investor has no control over the funds. This makes the investment a bit unreliable and if a single asset underperforms in the set the effects will fall on the cumulative yields. On the other hand, in fractional investment, the investor has complete control of the investment. Investors can choose the most attractive asset based on their risk-taking appetite.
You must estimate the initial investment capital. Fractional investment mostly works on initial investments of ?10 lac-?25 lac. Can you as a small investor afford that much?
Time of Return
When investing, you should have an estimated understanding of the period of investment. You should know when the returns will start to come in. This kind of investment needs a few initial years to settle. Consistent distribution of rental cash allows this investment to bear better tolerance to market volatility.
Be A Vigilant and Expert Investor
Commercial real estate investments offering fractional ownership require constant valuation and due diligence. Without an idea of managing real estate investments, you may lose yourself in this daunting environment.
How Does Fractionalisation CRE further Help?
Given all these predicaments to bring down the investment to the micro level, Grip, a digital disruptive AI platform, gives a fresh take to fractional CRE investment. Initial investment capital is reduced to ? 1 lac when one invests through here in a fractional CRE property supported by SPVs. The platform declares transparent quarterly returns with up to 11% yield. Properties displayed on this platform are established MNC tenants with locked lease tenure. Due diligence review from the CRE platform Strata, which is the partnership firm establishes these companies. Opening CRE investment options for the micro investor, group with Grip to see greater diversity in your investments.