Shopoff Realty Investments recently took a big first step into the digital space. The real estate investment firm has formed a new partnership with Alternative Investment Exchange (AEX), which will allow investors of its Shopoff to subscribe digitally through Registered Investment Advisor (RIA), independent broker dealer and director investor channels . The AIX platform is able to connect with Shopoff Realty’s transfer agents to deliver a seamless end-to-end experience.
Shopoff Realty is the latest example of how private equity real estate sponsors and fund managers are adopting technology to expand digital channels to make it easier for investors and their financial advisors to buy, own and sell real estate investments online Can you
AIX, based in Philadelphia, builds customized systems that connect wealth managers with sponsors of alternative investments. These systems create a process that involves transfer agencies that work with sponsors and custodians used by many money managers. The system guides users through regulated processes of signature, documentation and compliance required to make investments.
“With working from home and hybrid office schedules, using digital channels has been a natural progression for the industry over the past few years,” says Joe Merriman, vice president of operations and investment services at Shopoff Realty Investments. “It is not only important, but essential to provide customers with the flexibility digital channels, and I think that is becoming the standard,” she says.
Shopoff Realty expects the new platform to reduce time spent on paperwork, increase access and speed in funding, and enhance the overall investment experience for both advisors and their clients. “These additional benefits help us grow our presence in the industry with the goal of creating a company with which the consultants will continue to partner,” says Merriman.
Over the past five years, the investment options market has made significant strides in the adoption of technology to replace real estate investing traditionally a manual process. Specifically, there is a lot of momentum and work and effort around automation and straight-through digital processing that has gone into the front-end process or client-facing sales experience.
Fintechs such as AIX, Case, Altigo, iCapital and RealBlock are among companies that help streamline front-end engagement with investors by providing solutions such as digital subscription documents and then passing those documents through the pipeline to custodians and custodians. clearing firms. , notes Anthony Chereso, president and CEO of the Institute for Portfolio Alternatives. “Where we really have to work is on the last mile—account maintenance and back-end liquidity ends,” Chereso says.
The evolution of the digital platform continues
Privately held real estate investment options are still working to catch up with the broader investment market in which investors can easily buy and sell publicly traded stocks, mutual funds and ETFs from their smartphones. Chereso notes that private investment firms have faced various speed constraints when developing those end-to-end digital channels, including regulatory and legal hurdles, as well as getting various stakeholders to invest in the system. who can work together.
All the various stages of the investment process in terms of disbursing documents and collecting signatures have to go through a pipeline to reach the transfer agent of the fund. “There are several steps down this path that have been very paper-intensive in nature and manual,” says Phil Graham, executive vice president of strategic relations for Inland Securities Corp. What companies are doing now is providing digital solutions to streamline that process, improve client experiences, and reduce errors, he says.
Inland has a diversified product platform that also includes non-traded NAV REITs, securitized DSTs, qualified opportunity sector funds and Reg D private offerings. Traditionally, investing in any of those products has been paper intensive. Inland engages with a variety of technology platforms to provide solutions on a more seamless, digital basis. In the past, there may have been some financial professionals who shy away from using options because digital channels were not available, notes Graham. “On behalf of the entire industry, we are constantly striving to improve the entire experience and process,” he adds.
Some observers attribute credit crowdfunding to helping lead to more tech-focused sales channels in the wider commercial real estate investment industry. Toure says, “We really saw a turning point in the summer of 2019, where we started seeing a lot of big sponsors see that digital syndication was not necessarily going to replace what they were doing, it was an extension of that. what they were doing before.” Stein, CEO of CrowdStreet Inc., CrowdStreet launched its crowdfunding marketplace in 2014, followed by a “white label” software product that allowed sponsors to move fundraising and investment management online.
The shift to digital was further accelerated during COVID in the summer of 2020 and 2021 when everyone went online out of necessity. “It opened the eyes of many of the biggest developers and operators across the country. They recognized very quickly as things went online that their ability to raise capital and manage investors for projects also needed to be online. Had to answer,” Stein says.
Improving “Last Mile” Processes
Technology streamlines the process and reduces the time it takes to invest capital from the point when the investment decision is made to the time the capital is put into investment. It also reduces errors significantly. “We’ve seen significant gains from advances in the space so far, and the flow of investment in technology solutions has accelerated,” says Chereso.
Where the industry is still working on improving its digital processes is in the “last mile” — the account maintenance and liquidity piece, notes Chereso. For example, if an investor wants to convert a dividend distribution from automatic reinvestment to cash dividend or initiate a redemption, it is still a manual process. They say that the functions related to liquidity are still manual and need to be digitized. “Advanced technology solutions to streamline the onboarding and sales process have actually significantly improved capital flows for alternative investments,” says Chereso. “As we begin to see platforms incorporating liquidity options for alternative investment strategies on the back-end, I think this will drive another level of growth and capital flows to alternative investments.”
First Look for Funding Everything can be done online and very quickly. Stein agrees, the part that has yet to change is liquidity on the sell side because private real estate is still a very liquid asset. “It was part of our vision when we started CrowdStreet, and we want to be part of doing that, but before you can do that, you need to get everyone online,” he says. Therefore, as more sponsors start using the online syndication model, and as more properties become digitized, bringing technology to the sales side creates a brighter future, he adds.