The $5 trillion private commercial real estate investment market has long been plagued by the problem of illiquidity. General and limited partners are unable to efficiently sell a fractional ownership interest in their real estate syndicate — a group of investors that pool funds to purchase assets. New York City-based startup Real Liquidity has a plan to change that.
Comprised of real estate, investment, legal and securities professionals, Real Liquidity is out to change the way real estate is bought and sold by utilizing a proprietary technology-driven marketplace. Their solution connects buyers with sellers that otherwise would not have access to each other.
Founder and CEO Kevin Guy was inspired to build Real Liquidity after the passing of the Job Acts in 2012, a law intended to encourage the funding of small businesses by easing various securities regulations. The law helped create a market — estimated somewhere north of $5 trillion — of owners with partial interests in real estate assets located across the United States who all faced the same problem — liquidity.
“Sponsors and limited partners often find themselves with their capital locked up in real estate assets from which they cannot quickly or efficiently get out,” said Guy. “To divest their equity in these assets, the sponsors and limited partners traditionally have had to first go to the existing shareholders and/or an inefficient private market where they are forced to take a significant discount in the value of their shares — sometimes at 50 cents on the dollar, or even worse. It’s painful. Now there’s a better solution for sellers to get closer to fair market value.”
In addition, Real Liquidity provides opportunity and a service to an accredited investor class that never before had access to a private market.
“Whether it’s a partner dispute, family reorganization, or different owner investment objectives,” Guy said, “at some point in the future, the goal of general and limited partners is the same — to liquidate some or all of their equity in an asset in which they have ownership.”
According to Guy, the most common reasons a seller desires liquidity include: a partner/family dispute; a significant change-of-life event or a different investment; or, typically, where one partner wants to divest their ownership interest in the asset while the other partner(s) want to remain an owner.
“We took the time to get the right opinions from the best minds before developing the technology and processes,” Guy said. “Our advisory board members will be publicly announced in the near future.”
To provide a desirable marketplace to a pool of accredited investors, the Real Liquidity team is working with sponsors and management teams to onboard what it describes as “quality, seasoned, and cash-flowing assets.” Although applicable to assets of nearly all sizes and values, most properties vetted through the process are in the $5 million – $50 million range. The vetting process includes scrutinizing the property’s financials, property history, tenant mix, market data, and management experience.
The company has recently begun conducting due-diligence for the first wave of properties, while continuing to attract other commercial properties.