Individuals Can Get in on Property Development Investment

BY STEVE DINNEN

Des Moines is booming, with construction cranes rising from every square mile of the city and its suburbs to hoist roof beams and walls into place for apartments, office buildings and strip malls. The firms behind these projects are spending hundreds of millions of dollars of their own on these deals, and in some instances you can add your own money into this dynamic build-out.

Property developers typically work with money raised from company owners and from institutional investors such as pension funds and insurers. But occasionally, some developers will include funding from individuals. It can be profitable for the investor, though there is no guarantee. There is, however, a guarantee that it will require patience, as real estate investing unfolds over a 15- or 20-year time frame. There’s an expectation that you understand how an investment in real estate differs (greatly) from, say, the stock market. And you’ll have access to these deals only as an accredited investor, meaning you have $1 million or more in assets or qualifying annual income.

One Des Moines firm that allows individual investing is Nelson Construction & Development. It develops office buildings, hotels and multifamily apartments. To fund those projects it will blend money borrowed from the bank with equity raised from company owners, institutional investors and sometimes individuals. Alexander Grgurich, a development analyst at Nelson, said the typical buy-in for an individual is a minimum of $100,000. Individual investors are usually referred to the company by someone already known to Nelson. “We don’t cold call,” Grgurich said.

Hubbell Realty Co. has been building in Des Moines since the 1800s. It can draw leading national institutional investors to its deals, but from time to time individuals put in funds. Dan Cornelison, senior vice president and general counsel at Hubbell, said these investors have some relationship with board members or the company.

“We vet our properties conservatively and carefully,” he said. “And we do likewise with our partners.”

In Urbandale, R&R Equity Partners works with both institutional and high net worth individuals to secure funding for projects developed by sister company R&R Realty Group, according to the company’s website.

While all of these opportunities so far are limited to accredited investors, Blackbird Investments is considering another approach to funding that would be open to individual investors as long as they have a securities trading account. This would be by way of a REIT—a Real Estate Investment Trust—that sells capital raising shares to the public. The advantage here for investors is that they gain liquidity, since they can buy into or sell out of the REIT anytime they wish.

Conlin Properties avoids individual investments. J.B. Conlin, chief operating officer, said that diverging opinions between institutional and individual investors on aspects such as tax flows and liquidity make it more desirable to stay with corporate dollars.

However your money flows into a deal, or whether it does, Hubbell’s Cornelison said it’s important to understand that real estate as an investment has its ups and downs.

“There will come a point in time when it’s not working well,” Cornelison said. “Can you withstand a downturn?”

If you can’t, maybe you should leave that money under your pillow.