Money managers are having trouble hanging on to money, at least that is what is being reported in Bloomberg Businessweek. They say top asset managers, hurt by slumping stock markets worldwide, recorded billions of dollars of withdrawals in the fourth quarter. Business Insider reported that traders have not bet against stocks this aggressively since 2010. Los Angeles Times headlines read, “Stocks take a dive, weighed down by another drop in oil prices.”
But the money that is leaving the stock market has to go somewhere. Jack Martin of Bakerson Real Estate Capital Management suggests that private equity real estate is one place it could go.
“Looking at today’s stock market, it makes sense to consider diversifying into something the stock brokers don’t do,” said Martin, principal and co-founder of the group, which supports real estate investments through crowdfunding with accredited investors.
“Investor uncertainty runs in every asset class,” said Martin. “But most investors don’t know that they have options. They don’t know that they have the options of investing in good, quality [real estate] syndications.”
Private equity real estate is an alternative to traditional asset classes of stocks, bonds and cash. Private equity real estate managers bring together investors to buy and develop real estate using proven strategies. Once the project is completed, each investor gets a share of the profit. Such investment groups or syndications are regulated by the U.S. Securities and Exchange Commission (SEC). While the traditional asset classes are stocks, bonds and cash, alternative assets include commodities (such as metal, energy, agriculture), real estate, insurance products and foreign currency.
“The clear winner today is real estate,” said Martin, who lives in Northern Arizona. “Real estate crashed as hard as it’s ever crashed. The 2008 crash happened because of debt. People used their homes as an ATM. The economy was fueled by that debt. Today’s discretionary spending is not coming from debt. It’s harder to get a loan today than any time in my lifetime,” said the 42-year-old.
Jim Snook, an associate broker with Dallas Real Estate, agrees that the real estate market is strong. Snook is seeing an increasing number of people putting investment money into second homes and rental properties. “This is a really good time to buy rental properties because of the growth potential in Northern Arizona,” said the realtor, who specializes in foreclosures, “which are almost nonexistent now.” According to Snook, growth potential is high in two areas: increasing rents and climbing real estate value.
“If you go to Craiglist and look at local rent prices, it is amazing,” said Snook, who pointed to a 500-square-foot unit renting for more than $1,100 per month that was displayed on the popular website. “Prices are going up. Rents are going up. And it’s still cheap to buy.”
Rob Gerlak of Alliance Bank said, “There’s not a significant amount of commercial property available in Northern Arizona, so people buy residential property as rentals. I’ve seen a good pick up in that over the last three to four years.”
Alliance Bank of Arizona is part of Western Alliance Bancorporation, a holding company with more than $14 billion in assets. Gerlak, a commercial lender at Alliance, attends foreclosure auctions on the steps of the Coconino County Courthouse.
“I’ve never seen a commercial property go there,” he said. “I believe that the bulk of the people there are there because they’ve taken their money out of the stock market and are investing in real estate rentals.”
“As an alternative to landlording, some people invest in real estate funds,” said Snook. “People will go together and buy a house or property.”
According to Martin, real estate syndications work for a variety of reasons. First, the investment is “backed by something real – a real asset, an actual piece of real estate that produces income,” he explained. Second, the knowledgeable operator or syndicator buys deals that are discounted. “In some respects, you can insulate yourself by choosing the right location. You can’t do that with the stock market,” he added.
Martin was quick to point out that even though there is a reduced risk with real estate capital investments compared to the current stock market, the investor does give up liquidity.
A third advantage to pooling money with other investors under the umbrella of a real estate capital manager is access. “You form close personal relationships. You know the people and can call them up to ask advice for real estate. But be careful to vet them, just as you would when someone gives you a stock tip,” Martin warned.
“The primary way that real estate [private equity] is an advantage is when you are working with the right operator. The one who is honest, has a track record, knows how to find good deals and gets higher returns,” concluded Martin.
By Stacey Wittig
Alliance Bank of Arizona
501 E. Butler Ave., Flagstaff, AZ 86001
Bakerson Real Estate Capital Management
3030 E Cactus, Suite #105, Phoenix AZ, 85032
Dallas Real Estate
5200 E. Cortland Blvd., Suite D-1, Flagstaff, AZ 86004