REI Equity offers opportunity for small investors

The benefits of commercial real estate investment — limited risk, regular income and long-term growth — can be available to regular folks, say REI Equity Partners.

“It’s typically somebody who wants to get involved in real estate, but doesn’t have the expertise or skill set to mange a portfolio of real estate,” said Bob Hebert of Ridgefield, one of REI’s three partners. “We look at properties, we look for properties that meet certain parameters, then we put together a group of investment partners.”

“It’s class A, investment-grade real estate, not just any old real estate,” said Alan Blair of Wilton, a partner.

“We’re giving people with as little $25,000 to invest the benefits of owning real estate. They become partners with us in a transaction,” Mr. Hebert said.

“There’s huge wealth built in this country because of commercial real estate — by far the fastest way to grow money long-term,” said Bob Priest of Stamford, REI’s third partner. “With the tax laws in this country, there’s no better path to long-term wealth. None.”

Even many businesses that are focused on some other economic activity — a store, a service business — are also real estate investments.

“The small business dream is you make your income in your business and you build your wealth in the underlying real estate,” Mr. Priest said.

The REI partners say they’re not trying to put together risky, speculative deals.

“It’s important to understand the difference between cash flow properties and developers and speculators. It’s huge. We are not developers and speculators,” Mr. Priest said. “Developers take a lot risk — high risk, high potential return. High risk, high chance of failure, too.”

“Our specialty is in cash-flowing, 100% occupied, quality-tenant real estate,” Mr. Blair said.

“Commercial real estate is not a single industry. It is a conglomerate of many, many industries — the retail commercial industry is different than office, is different than golf courses, is different than hotels. They’re all different businesses,” Mr. Blair said.

“The good thing, from our perspective, is it’s not a very efficient market, as Wall Street is,” he said. “That it’s not an efficient market means we can find opportunities.”

REI manages investments in 13 properties worth about $35 million, and recently made its first acquisition financed with smaller investors, a retail center near Chicago.

Traditionally, commercial real estate ventures are an investment niche for people who are already wealthy.

“The price of entry is typically between $300,000 to $500,000 of spendable assets, to buy decent cash flow properties — bare minimum,” said Mr. Priest.

“And for those people who can afford to play, the returns are excellent: You have both a strong cash flow on a regular basis and a long-term appreciation.

“Our vision, our passion, is to make those kinds of returns available to the ordinary individual investors.”

“We can put together what we call single-property funds for $2-million deals to $10- to $15-million deals — that’s our sweet spot range — depending upon what investment partners want,” Mr. Blair said.

The investment deals are discrete — it’s not a fund.

“Every property is its own single-purpose entity,” Mr. Hebert said. “… That’s the only property they’re partners in. It’s not put into a pool of 20 or 100 other properties. They have an ownership interest in that one property.”

The idea is to bring in nice annual returns — rental income — while building value through appreciation of the property. Investors should enjoy income while they own the property, and also profit  when it’s eventually re-sold.

“There’s two components of it,” Mr. Hebert said. “You have your cash-on-cash return, which is the 8% to 10% our investors will generate off of these properties.

“And as you hold on to these properties over time, you get asset appreciation. So when you turn around and sell these properties — real estate has cycles, it goes up and down — but at the time we sell these, we project there will be some asset appreciation.

“Based on our projected returns, our investors — let’s say you have a $25,000 investor,” Mr. Hebert said. “After 10 years they have all their money back, now they’re still getting their 10% a year cash-on-cash return. Now, if we sell it, they’re getting the capital appreciation, or asset appreciation.”

Mr. Priest added, “Very important to understand, real estate is a long-term asset. If people want to buy real estate and sell it next week, that’s not advisable. And because of that, our limited partnership investments are set up to be friendly to IRA and 401(k) type monies — long-term money, long-term investment.

“About a quarter of our investment dollars are IRA money,” he said.

REI continues to work with larger investors that are more traditional in commercial real estate.

“We also will work with family offices, where they manage the assets of wealthy people,” said Mr. Hebert. “But, again, they want to invest in real estate but they want to partner with somebody who has the expertise and has the skill set to provide the analysis and properly manage these investments.”

Investors, large or small, make their own decisions — again, unlike a fund where money is pooled for managed investment.

“We provide them, step by step, with all the analysis and investment analysis as to how we’re arriving at the decision that this is a good investment,” Mr. Hebert said.

“At any point in time during our due diligence process, if they, our investors, aren’t comfortable with any of those findings, they have the option to withdraw from that investment — this is all prior to the closing, of course.”

REI’s business model developed out of the group’s work for wealthier real estate investment clients.

“The way we got started is by doing this for clients. A wealthy investment group retained us,” Mr.  Blair said.

The partners would find and analyze investment properties all around the country.

“In order to serve that client we developed contacts, tools and a system that allowed us to maximize our value to the client.”

It worked. And they wanted to do the same thing for less-wealthy clients, including themselves. The three REI partners invest in the deals they put together.

“We decided that we wanted to make this type of investment available to individual folks,” Mr. Blair said.

“As a result of this passion, we put together a partnership deal where individual investors can participate in a deal, knowing that the deal would be structured the way we would want it structured if we were investors — because we are investors side by side with our partners.”

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