The investment process
Fractional ownership has emerged as the solution for average citizens seeking to circumvent the financial barriers of making profitable investments in commercial real estate. Unlikethe traditional concept of 'ownership' of property which by definition means sole ownership of property, fractional ownership refers to 'shared ownership' where an investor owns only a fraction of the property. In other words, funds are pooled in from multitude of investors and each investor gets fractional ownership of the property.
Real-estate tech consultancies host platforms which aggregate pre-leased commercial and industrial real estate assets and properties such as offices spaces and warehouses. Apart fromlisting Grade-A CRE properties, they also provide data-driven insights to potential investors to facilitate efficient investment inaffordable, stable and reliableoptions via Fractional Ownership.
This process through which a property is listed and then is assigned to an investor takes places across a number of stages:
Property Selection:
The main factors that determine the value of a property are location, yield from rental, building specs, property title, tenant and future capital appreciation. At this stage an extensive data-driven analysis, evaluation and selection process is undertaken in association with International real estate consultants to ensure that investors get access to the best possible return on their investment. This also ensures that the property listings on the platform are of International Grade-A standard.
Property Funding:
Once the Property Selection stage is completed, a property is listed on the host platform. Here investors can view the details of all investment offerings such as location of the property, rental yield, investment rate of return (IRR), terms of the lease by the tenant, legal due diligence documents, etc. After the investor makes his own evaluations of the listings, he may select and express interest in investing in property via the online investor s dashboard.
When investors express interest in making an investment, they will be asked to sign an Expression of Interest document and make an initial deposit amounting to 10% of the investment amount planned. If within 60 to 90 days the property doesn't get enough fund pledges then the investors will receive back their investment amount. If the total fund pledges after all the 10% investment amounts have been received is enough to fund the property then the remaining 90% is collected by issuing a Special Purpose Vehicle (SPV) and the registration will be made in the name of the SPV.
Capital Structure:
Once a property is funded by investors,the platform host consultancy facilitates an SPV to enable ownership off the asset. Each investor becomes a fractional owner of the commercial asset and shareholder of the SPC as they are issued unlisted equity shares and compulsorily convertible debentures of the SPV (ratio of 10:90). The SPV distributes all payable income from the property to the investors in the form of interest on debentures.
In case an investor wants to liquidate their holdings they may do so at any time by sale of securities to third parties. Additionally, the host platforms also have resale market listingson the investor's dashboard for the same purpose, which can be facilitated upon approaching the host organization for assistance.
To sum it up:
- INVEST: Buy vetted, Grade-A Commercial Assets.
- EARN: Earn passive incomefrom monthly rental yields.
- TRACK: Get regular updates and track your investment portfolio.
- SELL: Make a profitable exit via various liquidity options i.e. resale market platform, private sale, asset sale etc.
