My obsession with creating a better way to invest in real estate

Convenience is king.

American consumers want good prices and quality products. They also want convenience—and this year are more likely to favor the brands that make life easier. – WSJ – 2020 Retail Outlook

Backdrop

Real estate historically moved slow. Trends took decades to play out. Like a slow-moving tide or a slow-moving train wreck - this ‘slowness’ in real estate made it relatively easy to get into Industrial or out of Retail before their relative attractiveness (or lack thereof) was widely accepted.

Interestingly, however, commercial real estate is actually relatively difficult and expensive to access in a targeted way that doesn’t entail buying a building. I didn’t realize how big of a problem this was until I tried to invest in the themes I saw playing out in the world – long-story short, I simply couldn’t do it.

An idea takes hold

When my wife and I got married in 2016 and well before the recent COVID exodus, we watched as a number of our friends left the Bay Area in pursuit of a better lifestyle. We watched as they moved to amazing and affordable work-live-play markets like Salt Lake City, Bend, Boulder, Austin, Raleigh, Nashville, and Venice Beach.

Incredibly, what made this cycle different to previous cycles, was the biggest and best employers (FAANG) were actually following our friends to these new markets. I knew this expansion was going to be game changing for these markets, and ultimately, the real estate within.

I wanted to invest in these tectonic shifts! These were the forces that would drive long-term value in these markets – game changing opportunities. I wanted in on the action!

Swing and a miss

• So I went to BlackRock iShares and Vanguard to see if they had an ETF or index fund that could work. No luck – only the market of public REITs.
• Then I went to Schwab to see if there were any pureplay Public REITs for these markets. No luck – most REITs are spread across too many markets, and ones I didn’t want to own.
• Finally, I went to the world of Private Equity to see if there were any hyper-target funds – still not focused enough and way too expensive.

It was 2016 and there was no way to invest in real estate that you wanted in target institutional real estate with low costs, in a convenient way.

Seriously?!

Full-on Obsession

At that point, I was pretty curious if other people felt that way, so I reached out to every real investor, broker, investment banker and academic that I could to get their feedback. 100s of people. I was obsessed.

And when I asked them how they wanted to invest in real estate, they all said things like:

• “I think that Austin Apartments will outperform”;
• “We are underweight Salt Lake City Office”;
• “We are rotating into niche products like Senior Housing and out of High Street Retail”

But they had no easy way to achieve their strategies. (Little secret – they still have no easy way to achieve this!)

I love Vanguard and iShares. And their customers do as well. Behind USAA, they have the highest NPS scores of any major asset manager. Because of their focus on building customer centric investment products.

Real estate is different. Public REITs and Real Estate Private Equity Funds have an avg. NPS score of 0!

“Private equity isn’t my favorite asset class,” Theresa Taylor, the chair of the CalPERS board’s investment committee, said at a recent meeting. “It helps us achieve our 7 percent solution,” she said. “I know we have to be there. I wish we were 100 percent funded. Then, maybe we wouldn’t.” – NYT Marching order for next Chief of CalPERS: More PE

CalPERS is the largest Pension in the US. They should be getting all the love from their managers. If they feel this way, just imagine how the smaller Endowments, Foundations, and Pensions feel?!

In 2016, real estate seemed to have a serious investment product-market fit problem. Now, it’s fully apparent that solutions aren’t meeting the needs. People are investing in it, but begrudgingly.

A better way

There had to be a better way. Something that took inspiration from Vanguard and iShares and made the leap from liquid traditional assets to illiquid alternatives. An idea so simple that it could fit on a napkin, but so powerful that it could cause a massive shift in how we think and invest in real estate.

During this exploration, I got to meet with the prior head of real estate investing for a top Endowment.

He sketched this simplified solution on a napkin and said:

“I get it! It’s like a modern Vanguard but creating ready-made real estate funds for every market + sector. We could have used that!”

Napkin from Buck’s Restaurant Breakfast in 2018 

I’m still obsessed. And as a result, we at iREITs have been tirelessly working on building a better, more convenient way to invest in real estate ever since!