Securitized Real Estate
Securitized real estate is real estate packaged and sold as a security and, therefore, is regulated by federal securities law.
Real estate has always been attractive to investors for the tax advantages available through depreciation deductions and for portfolio diversification. In addition, real estate ownership for investment purposes may provide the monthly income and potential equity appreciation. Finally, real estate investors can also defer capital gains tax through a 1031 exchange instead of paying the heavy tax bill to transfer their capital into more liquid securities.
However, investors have been reasonably concerned that real estate is less regulated and less transparent than traditional securities. In addition, real estate ownership usually carries the extra burden of property oversight and management.
Securitized real estate maintains all the potential benefits of real estate while adding the disclosure of a security and removing 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 provides the disclosure and due diligence elements of a security. Because these are larger, institutional grade investments, structured and managed from beginning to end by sponsors with industry experience, investors have minimal participation in the management or oversight of the property; they simply receive their monthly income.