REI Capital Management Releases it’s Mission Statement
REI Capital’s mission is to provide everyday investors around the world with access to the wealth generating power of US Commercial Real Estate.
Six years ago, our founder was approached by a friend and previous investor, who asked: “Is there a way to reinvest my dividend back into your real estate deals without paying tax?” This question was the inspiration for our quest to Reinvent Real Estate Investments for investors around the world. How do we let some investors reinvest their returns without tax consequences, while simultaneously allowing some investors to maintain their cash distributions? All while maintaining a reasonable risk/return profile?
We were determined to find a better way, so we challenged all the basic assumptions within traditional real estate investments.
- Why are most real estate investments initially private placements?
- Why do typical real estate investments plan to be liquidated in 7-10 years?
- How do small balance investors gain access to real estate investments?
- How do their returns compare to big institutional investors?
Our analysis concluded that we could combine various aspects of the industry into a new type of fund, a fund that could deliver the immense wealth generating power of US Commercial Real Estate to those who truly need it.
The first question was: How can we reinvest our investors’ returns at the same rate that is currently earned on their initial investment dollars? This question led us down the path of creating a special consolidating fund instead of raising capital on a deal-by-deal basis. By pooling capital we could create a real estate portfolio large enough to purchase additional properties simply with the cash-flow generated from the original assets. This model is commonly used with large family offices that focus on real estate investing.
A similar model is also used by one of the greatest investors in the world, Warren Buffet. At Berkshire Hathaway, the profits that their investments earn are not distributed to investors as dividends. These profits are reinvested into additional businesses which produce more cash-flow, growing the base of investments that are producing returns. This is how Warren Buffet has delivered more than 2 million percent return over the past 50 years. We took a page from Mr. Buffet’s book by structuring our fund as an Interval Fund wrapped in a Permanent Capital Vehicle.
Our next and most daunting question was: “How do we provide liquidity in a private real estate investment?” Most comparable real estate investments must sell the assets to deliver liquidity to their investors. But our analysis showed that the true wealth generating power of our model was in the long-term compounding effect of portfolio appreciation which led us to take a new look at redemption programs. These are typically used in Private REITS, but the redemptions are very limited and are usually redeemed at a significant discount to the NAV price. Often investors are disappointed to learn they have to wait a very long time before the REIT has sufficient available cash to redeem their shares.
Upon deeper analysis it became clear that our fund’s business model should be able to provide adequate liquidity with our redemption program because:
- We are not a REIT and do not distribute 90% of our profits each month. So we should always have cash available to accommodate a significant number of redemptions.
- Our fund is designed to appeal to a large number of small investors, so redemption amounts will be smaller. Private REITs must have accredited investors, so they have a smaller number of large investors, so redemption amounts are larger.
- Our fund is an open ended fund, so we will be continuously attracting new investors, enabling us to replace the redeemed capital.
As we continued to challenge assumptions and innovate, all of the pieces started to come together. We developed a fund that provides a balanced, conservative, and reliable approach for growth equity and a second fund for reliable passive income. Our two structures also minimizes fees, streamlines regulatory compliance, and maximizes tax efficiency for both domestic & foreign investors.