Impact investing has grown from a quaint, niche idea to a powerful force inside the world of finance. At one time the thought of aligning investment goals with social responsibility seemed like an excellent way to turn a large fortune into a small fortune. These days, changing investor sentiment aligned with the “good” coupled with the rise of social media and digital platforms has led to a rapidly increasing amount of capital invested in impact projects. According to Barron’s an estimated $50 billion was invested in impact projects in 2009 growing to more than $502 billion in 2019. As the scale and scope of this investment focus has grown some on the frontline have embraced new tools to add clarity and accountability, specifically digital platforms and blockchain-related technologies.
Historically, commercial real estate has not been a readily available investment class like more traditional stocks, bonds, and other commonly held financial products. This exclusivity comes from the fact that commercial property deals are often complex and require substantial capital investments as well as detailed knowledge of all aspects of property development including site planning, construction issues, and zoning and local regulations. These barriers held investors at bay for a long time but now, with the transition into the digital world of finance and subsequent democratization of investment, property investing has become much more accessible to a much broader range of investors.
Accessibility and cost considerations
For instance, prior to the development of digital platforms, interacting with investors globally was pretty well impossible without deep pockets, serious connections, or both. Now any investor with an internet connection can deploy investment capital from anywhere in the world. The ease of investment transactions is further magnified when blockchain and digital currencies are employed. The friction of distance, paperwork and rigid banking rules that made traditional investing in a real estate project difficult, all but melts away.
In 2019, Prequin reported that total assets under management for real estate focused US private equity funds surpassed $900 billion, just shy of a full trillion. But the majority of these investments were only accessible to those investors who had the means to afford high minimum investments, much higher than say, buying a share in Berkshire Hathaway or a 10-year T-Bill. Now, with the emergence of fractional investing through digital platforms, and with new securities regulations in place, commercial real estate investments can be offered at much lower minimum investment, opening up and democratizing investment opportunities to everyone.
Attracting like-minded capital
The marriage of impact investing and digital technology not only allows for accessibility but it also offers investors and companies a means of connecting based on shared principles or ideals. Take a look at marketing materials for most big investment firms – many of them stress their stellar reputation, long period of service to their clients, or their futuristic algorithms and robust quantitative analysis. Digital platforms allow financial managers, property developers and other investment professionals to communicate their value sets to potential investors without a significant marketing push, whether those values are related to green building, sustainability, affordability or any combination of the above.
History has shown that when more people are exposed to the right professional or educational opportunities, they outperform those without the same good fortune. Similarly, barriers to opportunity, whether they be cultural, social, or political, can have disastrous consequences for the communities in question and society as a whole. The democratization of investment opportunities, including commercial real estate projects, is a step in the right direction towards greater opportunity and away from the limiting dogma of the past.
Image courtesy of Small Change.