What is Securitized Real Estate?

Securitized real estate is real estate that is packaged and sold as a security and is therefore regulated by federal securities legislation enacted to promote fuller disclosures and provide for more suitable investments for the investor.

Investment in real estate has always been attractive to investors for the tax advantages that are available through depreciation deductions, and also to provide portfolio diversification. In addition, ownership of real estate for investment purposes can provide the monthly income associated with debt instruments, together with the potential appreciation of equity. Lastly, many investors invest in real estate because they presently own real estate and desire to avail themselves of the deferral of capital gains tax through a 1031 exchange rather than pay the heavy tax bill necessary to transfer their capital into more liquid securities.

However, the reasonable concern of investors has been that the field of real estate is less regulated and less transparent than the field of traditional securities. In addition, the ownership of real estate usually carries with it the extra burden of property oversight and management.

Securitized real estate maintains all the benefits of real estate but adds the disclosure of a security, and in addition removes the responsibility of property management. Because these offerings are structured and offered as securities, investors must be supplied with a private placement memorandum (PPM) before purchase. The PPM gives the offerings the disclosure and due diligence elements of a security. And because these are larger, institutional grade investments, structured and managed from beginning to end by sponsors with decades of experience in the industry, there is minimal requirement for the investors to participate in the management or oversight of the property. They simply receive their monthly income.