Invest in Real Estate?
In 1990 Harry Markowitz won the Nobel prize in economics when he proved
that combining assets that have returns that are not correlated will
reduce risk without sacrificing returns. It has been shown that the
correlation between real estate returns and stock and bond returns is
negative, meaning the returns do not move in lockstep. Thus, given a
long term investment horizon, holding real estate in a diversified portfolio
should improve an investor's risk-adjusted returns. Many investment
experts agree that 10 to 15 percent of a properly diversified portfolio
should be invested in real estate.
According to Emerging Trends in
Real Estate 2004, a national survey now compiled by Price Waterhouse
Coopers, "real estate has delivered positive returns through an
entire cycle, surpassing stock and bond performance for the last decade.
The updated 2009 survey, stated “that after an unprecedented meltdown,
housing values should finally hit bottom during the year, followed by
later correcting commercial sectors.” We expect to see improving
returns overtime in this segment. ”Cash investors will have the upper
hand and excellent opportunities will appear to buy at market lows.”
Retail has been hit hard according to the survey as “cash-strapped
Americans struggle with credit card debt, the mortgage mess, and gloomy
employment environment.” Therefore, shopping centers in our opinion
are not the place to be at this time.
hedge against inflation
When the economy goes through an inflationary period, real estate can
provide a good way to preserve and even increase wealth for two main
reasons. First, when inflation rises, property values often increase,
along with the overall consumer price index. Second, a portion of the
income received from commercial real estate rises because owners can
pass on expenses through increased rents or higher common area charges.
The returns from commercial real estate come primarily from the rents
paid by tenants. These rents are determined by a lease, which is most
often a long-term contractual agreement. As a result, the returns of
private property ownership can be less volatile than the returns of
other asset types. The returns from vacation rentals are less predictable
but can provide a strong source of income and help cover the costs of
the property during the holding period.
Private Real Estate Instead of REITs?
The advantages of owning real estate
are often lost when investors choose publicly traded Real Estate Investment
Trusts. First, since REITs are traded on public markets, their returns
are positively correlated to other common stocks. This correlation eliminates
the advantage of holding real estate to improve portfolio diversification.
Historically, private real estate has demonstrated a negative correlation
with stocks and bonds, which means that returns on stocks and bonds
have not paralleled the returns of private real estate. Second, due
to the high correlation with stocks, REITs do not provide investors
with stable returns because of the volatility of public markets. Third,
recent research has found that unlike private real estate ownership,
REITs do not provide an adequate hedge against inflation. According
to the Real Estate Finance Journal, "…REITs do not provide
any kind of hedge against either the expected or unexpected component
to Invest with Us
The common vehicles for equity ownership
consist of two investment approaches. The first is the formation of
a limited liability company or limited partnership structure, which
is composed of multiple owners. The second approach is direct ownership,
in which there is only one equity investor.
Prospective investors should note that
nothing in this web site should be construed as an offer to sell securities.
Offers to sell securities will be made by Weybridge only to persons
and entities having a preexisting relationship with Weybridge or its
advisors and can be made only through a private placement delivered
to the prospective offeree in question.
When Weybridge purchases a property it
often forms a limited liability company which then owns the property
in a single purpose entity. The ownership of the limited liability company
is shared by individual investors and Weybridge. Weybridge acts as the
manager and performs all duties associated with owning and maintaining
the property. The investors can participate in the ownership either
through equity units or unsecured promissory notes. This structure allows
investors to pool their resources and participate in larger real estate
transactions with a total investment ranging from $25,000 to $200,000.
The equity units are typically paid
a quarterly preferred return based on the annual cash flow generated
from the property. When the property is sold, equity holders also receive
their pro rata share of the net sales proceeds from the increase in
value of the property, as well as their original investment. The equity
units are structured to provide considerable upside potential for the
equity holders, in addition to a preferred annual return.
Unsecured promissory notes provide
a fixed return to noteholders, much like coupon bonds, most of which
are part of qualified investment plans like IRA or 401K accounts. These
returns are paid out before equity returns, and noteholders may receive
an additional return for property appreciation upon sale or may receive
accrued interest upon sale or refinancing. The notes are structured
to provide high-yield fixed returns.
Investors can also choose to own
property without pooling their resources with other investors. This
allows the investor to make larger investments of $200,000 or greater
in tangible property without getting involved in the complexity and
detail associated with the acquisition and management of commercial
real estate. Weybridge will search the United States to find the property
that best fits the individual investor's needs. Weybridge will also
complete all due diligence, arrange financing, determine the best ownership
structure, negotiate and close the deal, develop an ownership strategy,
craft a successful leasing and management team and, once goals are met,
dispose of the property.
Please indicate your criteria so we can meet your individual investment needs.