The Invention of REITs
In 1960, Congress passed a law creating Real Estate Investment Trusts (REITs) to give average individuals the opportunity to invest in income-producing commercial real estate.
Since then, the number of investors investing in REITs has exploded. Today, an estimated 70 million Americans invest in and own shares of various REITs. Meanwhile, public REITs in the US alone have a market capitalization of just under 1 trillion dollars.
Why Have REITs Become So Popular?
One simple answer is that REITs have performed well for their investors. Since 2000, the FTSE NAREIT All REIT index (an indicator of the overall REIT market) has enjoyed a 482% growth increase, while growth of the S&P 500 since 2000 is just under 50%.
Another potential reason for REITs’ growth in popularity is that they tend to pay a higher relative dividend compared to most other publicly listed investments. This feature has made them particularly popular with retirees who are looking for a source of consistent stable income.
The Shortcomings of Today’s REITs
Today, there are two primary types of public REITs: Traded & Non-Traded.
Publicly traded REITs offer the benefits of being traded openly on an exchange, giving investors liquidity. However this liquidity tends to be priced into the value of the stock itself, aka a “liquidity premium”, resulting in lower relative returns for investors who otherwise would be happy to own the shares for the long-term.
The most commonly cited shortcoming of publicly traded REITs is that they are overly correlated to broader market volatility, meaning that the value may fluctuate up or down depending on how the rest of the stock market is doing. This can happen regardless of whether or not anything has actually changed with the underlying properties owned by the REIT.
Non-traded REITs, on the other hand, have grown in popularity because of the perceived consistent double-digit dividends paid to investors. However, these investments have recently come under heavy scrutiny due to the often large up-front fees charged to investors - and questionable practices around the disclosure of those fees. According to an Investor Bulletin by the Securities and Exchange Commission, up-front fees for non-traded REITs are often times as much as 15% of an individual’s initial investment, some of the highest fees charged across the entire financial industry.
Fundrise eREITs- The Next Evolution in REITs
Fundrise eREITs™ are the next evolution in real estate investing. The result of over a half-decade of learning, the Fundrise eREITs™ combine innovative technology with new federal regulations to offer investors the first ever low-fee, diversified commercial real estate investment available directly online to anyone in the United States, no matter their net worth¹.
What makes Fundrise eREITs™ unique?
- Low minimums (typically $1,000)
- Quarterly redemptions²
- Ultra-low fees (roughly 1/10th the fees of similar non-traded REITs)³
- “Direct-to-investor” online distribution
Important: In order to protect the entire Fundrise investor community, we may suspend redemptions during periods of extreme economic uncertainty. As of March 31, 2020, due to the Coronavirus (COVID-19) pandemic and its macroeconomic impact, we’ve determined that it is appropriate to temporarily suspend redemptions across all of our more mature eREITs and eFunds.
The eREIT™ model has forever changed the investment landscape by providing unprecedented access to a type of investment previously unavailable to the average investor, all through a simple online platform. The efficiency of this “direct-to-investor” distribution means we can better meet individual customer preferences while also rapidly evolving our investment strategies to keep up with shifting macroeconomic trends.
We have launched five different eREITs™ over the past year alone—the Growth and Income eREITs™, as well as three regionally focused eREITs™ giving everyday investors even more opportunities to diversify into real estate investing while also creating a customized portfolio tailored to their personal investment goals.
It has been exciting to see how well the Fundrise eREITs™ have been received. With $250 million in investment capacity, the eREITs™ are a giant step forward in achieving our vision of a future where all investors have a simple way to earn better, more stable returns.
However, we’ve only begun to scratch the surface when it comes to applying the power of new technology to an outdated investment world. Our next great innovation lies just ahead.