Capital Markets Insights

Why Private Real Estate Firms Are Embracing Investment Platforms

There has been an increasing trend of private equity real estate sponsors and fund managers embracing technology such as investment platfoms to expand their digital capabilities and distribution channels. An overarching theme of these initiatives is to enhance accessibility for investors and financial advisors to buy, own, and sell real estate investments online.

REITs are finding that the industry's shift towards digital channels has been a natural progression, particularly as technology can enable some of the same benefits that a public listing on an exchange can provide. Greater investor marketing capabilities to retail and accredited investors, real-time investment participation, and secondary trading possibilities under RegA+ offer increasingly comparable benefits that weren’t possible ten years ago. The flexibility provided by digital channels has become imperative and is poised to become the standard.

This advancement is part of a broader evolution in the investment market, where technology is revolutionizing the investment experience, and regulators are adapting to the rapid changes. Fintech products like Katipult DealFlow are pivotal in simplifying investor engagement through digital solutions for investor KYC, subscription documents, instant payment processing, and seamless transitions to custodians and transfer agents.

Equity Crowdfunding has been instrumental in pushing technology-centric sales channels in the commercial real estate sector. The trend gained momentum before 2019, but COVID-19 further accelerated the shift to digital during 2020 and 2021. Being forced to move everything online prompted commercial real estate investment firms to embrace the need for online investor management tools.

At Katipult, this trend is mirrored in data we have seen from customers, including a steady increase in REIT deals and most recently a single deal that raised $66,251,300 from 549 investors.

The Evolution of Digital Investment Platforms

As with all new technologies, investment platforms continuously evolve, making processes faster and easier. Privately held REITs need to align with the broader investment landscape, where investors effortlessly trade publicly traded stocks, mutual funds, and ETFs from their smartphones.

While the need to adapt to the digital world is urgent, many investment firms that have long relied on more manual processes have encountered unique challenges in building comprehensive digital strategies. These challenges include navigating regulatory and legal complexities, managing changing investor demographics, and uniting stakeholders to invest in an interconnected system of property, land and infrastructure assets.

What’s Next For REITs?

Since Real Estate Investment Trusts were established in the United States in 1960 to offer investors access to high-quality commercial real estate investments, the product's popularity has grown worldwide. In the US, approximately 45% of households directly invest in REITs as alternative investments or via mutual funds and ETFs.  

Between July 2013 and July 2023, the average daily trading volume for publicly traded REITs increased from $4.5 billion to $7.9 billion, an increase of 75%. There has been market uncertainty in recent years. In 2Q23, investment in U.S. commercial real estate was down 64% compared with a year earlier, except for off-campus student accommodation, which outperformed the primary market.

As for private REITs, the expectation is that investor appetite will remain strong, and many broker-dealers are embracing new private REIT products to offer to their investors as a differentiated service. As digital platforms evolve, the convergence of technology and real estate investment will provide investors and financial advisors with smoother processes, enhanced experiences, and a glimpse into the future of real estate investment.