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What are the most common commercial real estate investment structures?

Curious about Commercial real estate

What are the most common commercial real estate investment structures?

Commercial real estate investments can take various structures, each with its own characteristics and benefits. Here are some of the most common commercial real estate investment structures:

1. Direct Ownership:
Sole Ownership: Investors own the entire property individually, which provides full control and decisionmaking authority.
Joint Ownership: Multiple individuals or entities coown a property, typically as tenantsincommon (TIC) or through a partnership or LLC. This structure allows investors to pool resources and share responsibilities.

2. Real Estate Investment Trusts (REITs):
REITs are publicly traded companies that own and manage incomeproducing real estate properties. Investing in REITs offers liquidity and diversification, as they hold various property types.
Equity REITs primarily own and operate properties, while mortgage REITs invest in real estate loans.

3. Real Estate Partnerships:
Limited Partnerships (LPs) or Limited Liability Partnerships (LLPs): These structures involve general partners who manage the investment and limited partners who provide capital. Limited partners have limited liability.
Limited Liability Companies (LLCs): An LLC combines elements of partnerships and corporations, offering limited liability to members and flexibility in management.

4. Real Estate Syndication:
Syndications involve a sponsor or syndicator who identifies and manages investment opportunities. Investors pool capital to invest in specific projects or properties.
Syndications can take various forms, such as crowdfunding platforms, which allow individual investors to participate in commercial real estate deals.

5. Real Estate Funds:
Real estate funds pool capital from multiple investors to acquire and manage a diversified portfolio of properties. Common types include private equity real estate funds and real estate mutual funds.
These funds may have specific investment strategies, such as opportunistic, valueadd, or incomefocused.

6. Tenancy in Common (TIC):
TIC ownership allows multiple investors to coown a property, each with an undivided interest. It's commonly used for 1031 exchanges and larger investment properties.
TIC agreements outline the responsibilities and decisionmaking processes among coowners.

7. SaleLeaseback Transactions:
In this arrangement, a business owner sells a property they own to an investor and then leases it back for ongoing use. This can free up capital for the business while providing income to the investor.

8. Private Placements:
Private placements involve raising capital from a select group of accredited investors for specific real estate projects. These offerings are not publicly traded and often require compliance with securities regulations.

9. Real Estate Crowdfunding:
Crowdfunding platforms allow multiple investors, including nonaccredited individuals, to contribute smaller amounts of capital toward specific real estate deals. It provides accessibility to a broader range of investors.

10. REO Properties:
Real Estate Owned (REO) properties are typically acquired by banks or lenders through foreclosure. Investors can purchase these properties through auctions or listings.

11. 1031 Exchanges:
Section 1031 of the U.S. Internal Revenue Code allows investors to defer capital gains taxes by reinvesting proceeds from the sale of one property into another "likekind" property.

12. Ground Leases:
Investors can lease land for commercial development and construction. Ground leases typically involve longterm agreements and can be structured with rent escalations.

The choice of investment structure depends on factors such as the investor's objectives, risk tolerance, available capital, and expertise. It's essential to consult with legal and financial professionals when selecting the most suitable structure and conducting due diligence before making any commercial real estate investment.

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