Private Real Estate Syndications vs. Public REITS

You might be wondering: when I am considering investing in a private real estate syndication, what is the closest alternative? And how best can I compare my options?

This question is right on the mark.

The most obvious competition to a private syndication is to sink your money into a publicly-traded Real Estate Investment Trust (or a "REIT"). These investments trade essentially like a stock or ETF. They can be bought and sold in the public markets. And they invest in various forms of commercial real estate. In fact, they might be investing in pretty much the same thing, only more of it, as the private real estate syndication you are considering, say, in multi-family. So how might you decide between the two options?

There are plenty of articles you can read to help you get a sense. Some of them are pretty good.

What's really hard, though, is to compare track records. It's easy to find out how a REIT has done year over year. Let's imagine you choose the mammoth Vanguard Real Estate Exchange Traded Fund, or VNQ. You can navigate to the Vanguard site and see exactly how they've done. As of today (late March 2022), it has earned 8.92% since its inception in 2004--and that crossed over the huge crash in real estate and stocks of 2008! Over a friendlier period, such as the last year, it has returned 19.91%. You can get very good information about costs and fees of all sorts.

So, for that syndication offering, can you simply click on a website and get the same past performance? Unfortunately no, for several reasons. First of all, most private offerings are not exactly "funds" and don't have a track record that you can examine. If you are investing in an apartment complex in North Carolina, for instance, there is no 10 year track record someone could easily provide for that property. You can certainly ask to see how the property has performed in terms of rents received, expenses, and so forth. But apples-to-apples can be very tricky. And what if the syndication you are considering is a new build? There is nothing to go off of.

That's where comes in. What we are are seeking to do is to give you some visibility into the performance at least of the operator or syndication or fund that you are considering. Our goal is transparency: we seek to encourage those offering private investments to give you the kind of visibility that will help you make an informed choice as an investor.

While most syndicators are not offering you much so far in terms of past performance, some have begun to do so. We've been impressed in the past few months with what Goodegg Investments has published on their website about recent performance, as well as Fundrise among the crowdfunding sites. There is a growing movement, we believe, to ensure that investors like us can learn more about whether a private syndication makes more sense than a public REIT.

For what it's worth, we've been investing in both for some time. We hold a number of publicly-traded REITs in our retirement accounts and have been investing in private syndications in both taxable and tax-favored accounts. Overall, the returns have been good for both but the private investments have tended to outperform. In another post, we will take up the reasons why we think that's so. The firm Benzinga reports the same thing: "private equity real estate has produced average total annual returns ranging from 17.4% to 25.56% over the past 9 years, compared to a 12.42% average total return for the FTSE Nareit All Equity REITs index."

But don't take our word for it--ideally, the world of private investments will become much more transparent in the years to come as more and more syndicators offer better visibility into their track records.

We're on the case--and hope it proves useful as you decide which investment choices make the most sense for you, your friends, and your family.