Prior to the 1980s, commercial real estate (CRE) assets were rarely prioritized by institutional investors -- entities that hire financial professionals to manage pooled investment funds. CRE did become slightly more popular during the '80s and '90s, but it never accounted for more than 4 percent of institutional investors' aggregate portfolio until 2000.
And while bonds and equities continue to dominate most portfolios, a number of institutional investors have carved out a not insubstantial niche for CRE assets in the 21st century. In 2010, CRE accounted for 5.6 percent of institutional investors' aggregate portfolio, in 2013, it accounted for 8.8 percent of the portfolio, and in 2015, it accounted for 9.6 percent of the portfolio. Considering that institutional investors in the United States control over $25 trillion -- roughly 17 percent of all domestic financial assets -- CRE's portfolio share is nothing at which to balk.
That said, CRE has yet to see a parallel popularization in private individuals' investment portfolios. "When you look at the typical individual investor's portfolio ... there's often a big hole where commercial real estate is concerned," explains Nav Athwal, the founder and CEO of RealtyShares. "In fact, for many investors, this particular asset class is a relative unknown."
However, thanks in large part to the rise of crowdfunding, this may finally be starting to change.
Individual investors express interest in CRE, but question its accessibility.
Congress laid the groundwork for this uptick in individual CRE investment in early 2012 when it passed the Jumpstart Our Business Startups (JOBS) Act. Among other things, the JOBS Act nullified provisions of the Securities Act of 1933 that restricted the advertisement and sale of certain securities to the general public.
Under the new legislation, companies -- including CRE crowdfunding platforms -- could freely market their investment opportunities to any accredited investor (defined as an individual with a net worth of at least $1 million or an annual income of at least $200,000). In October 2015, the Securities and Exchange Commission approved a rule change to Title III of the JOBS Act that extended this privilege to non-accredited investors, as well.
These developments have paved the way for individual investors to dip their toes in an asset class in which they've long demonstrated interest, but which has often seemed prohibitively expensive. According to one survey of 2,000 Americans, 53 percent of respondents would like to invest in CRE assets in their communities -- including 67 percent of those aged 18 to 34 -- but 61 percent believe they lack the necessary funds.
The rise of CRE-centric crowdfunding platforms promises to help individual investors overcome this barrier to entry. Whereas traditionally, CRE investment has been reserved for those who could afford a five- or six-figure minimum buy-in -- hence institutional investors' dominance of the space -- crowdfunding enables an individual to get started with as little as $5,000.