Because investing with R2 is all about transparency, trust, credibility and access to high quality commercial real estate deals that have never been available to retail markets in the past…especially in a fast, quick and efficient manner using the power of technology.
For our equity deals, R2 focuses on transparency of information and credibility of sponsors: gathering the information needed for investors to identify which investments could potentially yield what are considered good “risk-adjusted” returns. This is a very important concept for building a diversified portfolio. All other things being equal (purchase price, asset location, etc.), a lower return objective typically signals lower risk and a higher return objective typically signals higher risk.
For example, the same operating assumptions with more leverage will yield a potentially higher return objective than the same operating assumptions with lower leverage. Increased leverage translates to a potential increased risk of default, so investors should really make sure that they are balancing risk by exploring lower leverage opportunities. Similarly, higher-quality assets typically have lower return objectives than lower-quality assets; the same exists with geographic areas, etc. We believe that a well-diversified portfolio takes into account all parts of the risk spectrum with different weightings based on investor preferences and suitability.
Should I always lean towards investing in a property offering higher return?
Potential for high return objectives or cash yield objectives should not be your only consideration when investing. For example, retail/office mix use building in Mississauga may have a lower risk profile than a similar building in Hamilton. As a result, the JV equity return objectives for the Mississauga deal may be lower than the return objectives for Hamilton — investors get a 6 percent cash yield and a total return of around 12 percent on the Mississauga asset, whereas in Hamilton, they might get an annual cash yield objective of 8 percent and a total return objective of 14 percent.
It might be tempting to stack a portfolio with the more enticing, albeit riskier, investment options, but from our perspective, the relationship between risk and return is very important for investors to understand, so they can size up portfolios and make sure they have some typically safer assets represented by high-quality offices, industrial and apartments assets in some normally less risky areas, as with Mississauga in the aforementioned example.
That is why we provide data and information (and eventually analytical tools) that give customers a representation of risk. For example, If there is a deal listed at an 11 percent return objective versus one at 16 percent, there is a reason for that return objective difference; The goal is to make it easy for investors to understand their portfolio compositions through transparency and make investing effortless. To achieve this ease of use, it is also necessary to read the details of a deal very carefully before investing.
Mix it up and attain balanced returns
Real Estate acts as a damper to volatility to many investment portfolios, as it is not directly correlated with the S&P 500 (at least in the short-term). The uncorrelated nature of real estate to the public markets, short-term, can be very powerful for portfolios, because there is no daily repricing based on market fluctuations. Of course, this makes real estate a relatively illiquid option, so it is best to plan where investment money goes accordingly. Furthermore, within real estate itself, investors should also keep a diverse set of properties in their investment portfolio, because not all expected returns will end up being achieved by all investments. R2 is one of the few platforms available that let users build a diversified portfolio between debt and equity, commercial and residential, and low- and high-risk options, all across different time horizons. This is just one of many attributes that makes R2 a one-stop shop for investors and sponsors alike.