Commercial real estate plays a pivotal role in the success or failure of an entire city. Think we’re exaggerating? Well, think again. And think harder this time. From restaurants to bars, stadiums, offices, shopping malls and countless other commercial spaces, real estate is often a basic requirement for people looking to operate their companies.
But in order for businesspeople to make informed purchasing and investment decisions about their commercial real estate, they need one thing above all others: transparency. If real estate buyers lack transparency about a property’s specs and details, there’s no possible way they can make an informed valuation and buying decision when it comes to the property they’re considering investing in.
This is also true of real estate investors in crowd-investing companies or REITs: even though they’re only purchasing a share of a larger property, the quality of their investment decisions is still completely dependent on the transparency and reliability of the market data available to them. But sadly, transparency is often little more than a myth in many of these real estate investment groups. Everyone claims to have it in spades, but few truly deliver.
Let’s take a closer look at the problem.
We’ll discuss 2 different types of transparency, which we’ll call “asset transparency” and “customer transparency”.
Asset transparency refers to the level of clarity and accessibility an organization maintains (or fails to maintain) around the quality, quantity and performance of its underlying assets or investments. This form of transparency is extremely important for a few different reasons.
First of all,
it gives investors a key glimpse into the organization’s broader view of
investing. If you’re considering allocating capital to real estate
you’re obviously going to be interested in the philosophy behind their decisions. For instance, do they favor flashier CRE investments, or do they prioritize solid leases and predictable profits for their investors? This matters greatly, because investment philosophies are directly tied to an organization’s profits and success in the long run.
Other issues people have encountered with asset transparency include companies inflating their past performance reports, misreporting key market indicators, or not being entirely forthcoming about the occupancy and vacancy status of acquired properties. Another common example would be a crowd investing company that fails to notify potential investors of unique risks associated with its choice in assets or strategy. No matter what form it takes though, a lack of asset transparency can only spell one thing for investors: trouble.
Customer transparency, on the other hand, refers to the level of transparency that an organization maintains around the fees, commissions and related charges incurred by its investors. Many crowd investing companies have been caught pulling silent fees and commissions out of their customers’ accounts, which had not been stated or clearly addressed upfront. That’s why it’s vitally important to read the entire prospectus of any real estate investment company or vehicle you’re considering.
The importance of this is impossible to overstate. Compounded over time, even a 1% increase in fees could cost investors as much as 10 years of their overall market performance. (Congratulations, friends, you’ve just found the dark side of compound interest.)
this type of transparency are especially common, and can be very hard to
detect. For instance, on their customers’ monthly statements, many REITs and
related companies display the total dollar amount in an investor’s account,
instead of the account’s net value (which would reflect fees, commissions and
To illustrate this, just paint a quick scenario in your mind. You’ve invested
$5,000 into an REIT and received your first monthly account statement valued, predictably, at $5,000. But it should actually be valued at the net value of $4,750 to accurately reflect your available funds after upcoming fees and commissions are taken into account. If you only have $4,750 of investable capital, you should be openly informed of that fact instead of being presented with an inflated and inaccurate figure.
Our guess is that anyone who passed the first grade would call this a dishonest practice. But showing investors’ total funds on statements instead of their truly available and investable net funds is just one of the common forms of the rampant lack of transparency in many commercial real estate crowd investing companies.
But You Have An Alternative…
But BuildingBits is different. We work hard to level the playing field to allow anyone and everyone to reap profits through commercial real estate. And we realize that we can’t succeed unless our investors succeed too.
That’s why it’s always been (and will always be) our policy to provide you with across-the-board transparency. Transparency may not mean a whole lot to many crowd investing companies these days. But to us, transparency means upfront and accurate disclosure of all account costs; swift and relevant market and asset updates; and accurate representation of profits, occupancy and vacancy stats, and all other relevant metrics that impact your investment success.
It’s just one of the many reasons why BuildingBits stands apart.