The Definitive Breakdown Of REITs Vs. Private REITs

This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you'll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra-wealthy, discuss economics, and and interview successful investors. Welcome to the Invest Like a Billionaire podcast. I am your co-host Ben Fraser, joined by fellow co-host Bob Fraser. And today we've got a really cool topic. We're going to be exploring the world of REITs. So public REITs, private REITs, and how they compare to private equity real estate. So A lot of times periodically we'll put together some think pieces, white papers on different topics. And a lot of it is spawned out of conversations that we're having with investors and a lot of what we're seeing in trends in the real estate space that we operate in. And there's a lot of confusion around the different names of what's the difference between a public REIT and a private REIT, and what's the difference between private equity real estate and a syndication and an eREIT and a mortgage REIT. And so there's all these terms that can be very confusing because a lot of different sponsors and funds use these terms without using a technical definition. You know, so a REIT is actually a technical definition, which we'll get into, but it gets even more confusing as they even make up things like eREIT, you know, and that's not even a real thing other than just a branding thing. So what we want to do is take some time and break down the differences between public REITs, private REITs, and private equity real estate, and look at the pros and cons from a variety of kind of a framework of, you know, pros and cons of how they compare to each other. So we're going to kind of do that and hopefully add some clarity to maybe any confusion you may have on this topic.

So with that, it's an important topic because a lot of people want to invest in real estate, you know, as a You know, certainly the prices are going up. So how do you invest in real estate when you don't want to be the cowboy home flipper yourself? So it's important questions to ask. And so, so it's gotten very, very popular. Started out in the 1970s. REITs started out with around $1.4 trillion in cash today. And what's happened ever since 2016 with the, with the Tax Act, the JOBS Act passed in 2016. 2016, we've seen a plethora of new real estate offerings coming to market, and it's creating this, this opportunity, but also this confusion. But make no, make no mistake, it is an opportunity. So we want to talk about literally what are REITs, what are public, private, and private equity REITs. We're going to kind of break it down, pros and cons. All right, so let's jump in. We're going to start with pretty much what most people or stock investors understand, and that is Public REITs. And these are public companies that own, you know, a majority of their assets are in real estate assets. They typically borrow money in addition, and then they go public and sell shares to the public. And so basically they, you know, it's a way for a public company, you and a public company buying a stock can own real estate. And so a REIT is actually an IRS term. It actually, it actually means— it doesn't mean what people think it means. It's just an IRS term that basically means that you can hold real estate in a fund. And if you meet these terms, you can avoid paying tax. And so typically all public companies are what's called C corporations, which is standard corporations, and they pay taxes on their earnings. And then when they distribute cash cash to the investors, the investors that receive those cash as dividends also pay taxes. So there's two— it's doubly taxed.

Double taxation.

And so a REIT, basically, if these companies distribute 90— if they own mostly real estate or mortgages and they distribute 90% of their profits as dividends, then they can be classified as a REIT and they get a tax deduction on whatever they distribute and hence not be doubly taxed. So that's the whole designation of a REIT.

And not just anyone can just throw up, you know, I'm going to be a REIT without doing these technical things that the IRS has codified that you have to abide by to—

Well, and it's actually a very extensive approval process. It isn't like you just fill out a form and declare yourself a REIT. It is a pretty massive approval process and pretty onerous.

And just to be clear there, REIT stands for Real Estate Investment Trust.

Yes. And there's two classes of real estate investment trusts. And the biggest one is equity REITs. And this is where you own the equity in real estate. And so that's the biggest class. 90% of REITs out there are equity REITs. And then there's a, there's a less common REIT that's a mortgage REIT. And this is where instead of owning actual real estate, you own mortgages. So for example, Annaly Capital Management, NLY, is a mortgage REIT. Those are less common. But it's very similar. You basically raise investor cash, you buy lots of mortgages, you leverage that with debt. And so there's two, two basic classes of, of public REITs.

And so mortgage REITs can also be abbreviated as MREITs. If you've heard of an MREIT, that's also a common phrase for mortgage REITs.

So now we're going to talk about private REITs. And this is where things really get confusing because technically there's no such thing as a private REIT, right?

Okay.

Because most private equity real estate and private equity funds are basically LLCs, which means they're not C corporations and they pay no taxes themselves, but they literally pass on their tax liability to the owners. So they're pass— what's called pass-through entities. So what that means is the REIT designation is irrelevant to them. And in fact, they can't even get a REIT designation technically. So, but a lot of companies are still calling themselves private REITs because REITs are so well understood and so desirable from investor point of view. So what we're going to talk about here for clarification purposes and for purposes of this talk is talk about private REITs as really they're simply Multi-asset private equity real estate funds.

In, you know, a lot of the private REITs, it's almost like a, I view it as a transitory phase as well because there are REITs that are private, they're not publicly traded on the stock market, but they intend to at some point. And so they will kind of go through this metamorphosis to become a public REIT. And so it can be used for that. But the way we're going to look at it is this kind of overarching kind of term in the private world, which can include, you know, a lot of, a lot of investors. If you've invested in kind of private equity real estate before, it can include private equity real estate funds or private equity syndications, right? And so the difference between, you know, those two terms is a syndication is generally a single asset investment vehicle, whereas a fund or a private REIT, as we're going to call them, is a multi-asset fund, which is comparable to a public REIT, which generally owns multiple assets and a lot of assets generally. So that's how we're gonna break it down. And so again, you know, a private REIT is not technically a thing. It's kind of a marketing tool. You may see someone, you know, offer a private REIT. It's not actually a technical REIT as defined by the IRS, but it can be a helpful way to kind of understand the public versus private here.

So again, just to summarize, A public REIT basically raises equity capital from investors. It invests in— basically buys real estate assets. It borrows money and, and sends the earnings to investors, at least 90%. Yeah. Okay. So private REITs do exactly the same thing. They generally raise money from investors. They borrow money from from capital sources, and then they buy assets and distribute the earnings to investors. So, extremely similar.

Okay?

The only difference is they're not publicly traded and they're usually in LLCs. And then our third class is private syndications, which is generally a single asset. So, a company will go out to buy an apartment complex. They will find some equity for that. They will find some debt for that. And then give the results to investors. But it's a single apartment complex.

Right. And really just another kind of point on this is the way in which these companies raise capital for a public REIT versus a private REIT or private equity real estate is very different, right? So, and that was what the big change in the JOBS Act in 2016 that allowed kind of the floodgates to open because a lot of these private investments that were once not available to high net worth or accredited investors are now available. And so that's, that's now a vehicle through Regulation D, which is another topic, but allows sponsors to go raise money from investors without having to do an offering, a public offering.

Yeah, the big change, I mean, the 506 rule has been around for a long time, but in 2016 they added a designation, 506, that allowed these companies raising private equity to market to investors. And that was a first. So literally you could invest in this, but no one could tell you about it. Basically, you couldn't find out about it except by personal relationship, which is, you know, so they changed that. And now, now it's, you know, the Wild West. Okay. So we're going to break down now with kind of that overview. We're going to break down the pros and cons in a couple of areas. So the first, the first is taxes. Now, you may think Why would you start with taxes? But actually, that's one of the main reasons, one of the main advantages of real estate is the tax. It's very tax advantageous. In fact, it's probably the most tax advantageous investment you can make. So, let's look at this. Which lets you keep more of your money? Well, as you've found out, so public REITs are singly taxed. So, they're fairly efficient in terms of taxes, right? Right there, they basically don't pay tax on whatever they distribute, the profits they distribute. And then investors generally pay tax on the dividends. And there is a breakdown here, whether they're qualified or unqualified. You pay either capital gains tax rates or ordinary tax rates. But so it can be either. So So let's say it's somewhere in the middle there. All right, and then private REITs are very interesting, okay? Because so private REITs are partnerships and technically they're LLCs. And as you become a partner in the LLC and you get a K-1 at the end of the year. And a K-1 is your breakdown, your, you're part of the income as well as the tax breaks. So what happens in private equity and in real estate is you have a very large depreciation expense typically. And companies, a lot of companies are doing even what's called cost segregation studies to accelerate depreciation. And what that means is, let's say the company is earning, you know, the distributions to you might be $10,000 a year, But because of depreciation, you actually pay zero taxes on that. So it comes in as tax-free income, even though you're getting cash flow. Because, so you have a $10,000 cash distribution, but a $10,000 paper tax deduction in addition to that. So netting out to zero. That's a huge plus. And that would show up on your K-1, you get that. So what happens is you end up getting a K-1. You don't have to pay tax. You don't have a tax liability on that. So it actually is a huge break. Then there's other things like 1031 exchanges and opportunity zones, which we won't get into, you know, on this, on this talk. But there's huge tax advantages to opportunity zones and to 1031 exchanges where you defer taxation. And again, and that would all come through on your K-1s. So what happens if you're actually a private equity investor, you have a huge amount of advantageous tax treatment. And you pretty much wouldn't have any of the short-term capital gains depending on how the REIT is structured, but there's far less. So—

And because when you're investing in a private REIT, you're becoming a part owner of the assets. And as a part owner, you get the benefits as an owner, which includes obviously the tax benefits that get pushed through that that won't get pushed through in a public REIT.

Exactly. All right, so bottom line, win or loser, public REITs, private REITs. Well, in this one, we're going to give it to private REITs by a long shot because you have pass-through depreciation and you have a host of other tax advantages like 1031 exchanges and opportunity zones, et cetera. But it's a pretty major win. For private REITs to do that.

I want to make the side note too, the difference in tax reporting is going to be a K-1 versus a 1099 if you're investing in a public REIT. Some investors maybe get scared hearing about a K-1 if they've never seen one before, but it's largely a few-page tax report that all your CPAs will know what it is. It's really not a hurdle where a lot of people think it might be a hurdle because they're not used to it. It's really similar.

The biggest complaint I've had about K-1s from investors is, is the operators who are late in delivering their K-1s. So a lot of times if you get a lot of these, you have a lot of K-1s coming in, you may have to delay your tax filing.

Yes. So word to the wise, always ask the operator when they're delivering their K-1s by.

But yeah, still. So you have to delay your filing. You have to extend your filing. No. Whatever, you know, to me that's no deal breaker, you know? All right, so the second category we want to look at is liquidity. So you want your money back. You've invested your $100,000 in this and now you decide you want your money back. You know, what about that? And this is where the greatest feature of public REITs, of course, is you can get your money back. So go into the stock market, Sell your shares. Boom, your money is back. So there's an active, active public market where you can easily cash out your position and access your funds. And that is on a moment's notice. And that liquidity and private REITs cannot compare to that. No, there's generally when you put your money in, it is locked up and it's, it's, it's gone until they release it.

Yep.

So Most of the time you have lockup periods. I've seen lockup periods, it's not uncommon to see lockup periods 10 years, some are as low as 3, but commonly it's 5. 5 to 7 is kind of the average. 5 to 7 years. And it's locked up and that's, you know, you got to decide if that's worth it or not. You know, although most investors, as you pointed out, overestimate their need for liquidity, right?

Right.

Everybody wants it just in case, but no one really needs it.

Yeah, we break this down in an earlier episode. I believe it's the Alternative Investment Continuum. Where there's actually some pretty interesting research done to where people's estimate of their liquidity needs is way overboard. There's really not the need for liquidity that most investors expect. Obviously, you want to have some in a worst-case scenario and maybe in an economic downturn, but to the extent that investors think they need, they don't actually need that much.

Yeah. And there is a downside to that liquidity though. 100%. You know, yeah. So in 2008, when the markets are crashing or 2009, you can get liquidity, but you may not get it at a price you're interested in. So it's more fire sale liquidity, you know, and I make another side point, too. There are some private REITs that do offer liquidity like our flagship fund.

Yes.

So but that is, that is definitely not common. Right. All right.

So who wins in this category? I mean, it's pretty obvious.

By a long shot, public REITs are going to win in this category. All right. Here's a biggie, is value. Getting your most, getting the most bang for your buck. So this is a third kind of component we want to look at. So let's say you're going to buy $100,000 in real estate and you decide, you know what, the public REITs are so much easier. I'm just going to go on my TD Ameritrade and pick a REIT and boom, buy it. All done. And, and you think you bought $100,000 in real estate, right? Well, as it turns out, not even close. I just did a breakdown and looked at the largest 8 public REITs by market cap, meaning just the largest 8 public REITs, and looked at their price-to-book value ratios. This means the book value of their real estate versus the price per share for that real estate. So you would expect it to be close to 1. It means a dollar share price bought you a dollar worth of real estate value.

And just to further explain that, the book value is what the operator is carrying the value of these assets on their balance sheet at.

Right.

What is the value per GAAP, generally accepted accounting principles, what is the value, and then The price-to-book is a ratio that looks at the value and the, um, the value of the shares, right, relative to the price of the real estate that they own, right?

And you would expect to be pretty equal, right? Sure.

Yeah, maybe a little bit more. Let's get liquidity.

As it turns out, it's not even close. So guess what the range is of the top 8 public companies? So it goes all the way from 1.7 times 2, meaning you're buying it for $170, you can buy $100. You're getting $100 worth of real estate. Yeah, I mean, but you may feel good about that, you know, so, or 21 times.

Yeah, so it's kind of mind-boggling.

That's in— that's insane. That's, that's insane. So literally your, your $100,000 investment is buying, you know, $5,000 in real estate. Less than $5,000 in real estate. That's nuts. So don't you— wouldn't you want to buy, you know, if you want to invest in REIT, wouldn't you expect to get some real estate? And, and so what's happening is the stock market, when these companies go public, the market is beating up their shares way beyond the price of the underlying real estate. So you just have to know when you're doing that, you're really not buying real estate. And public REITs are really not buying real estate. They are, they are buying the stock market. And there's the correlations that you can see are about 70%, meaning the REITs are correlated 70% of the time with the stock market. So basically you're buying stocks and with all the emotional ups and downs of stocks. Right. And so on the other hand, private REITs are always sold at book value. I've never seen anything not sold at book value. I guess you could argue that if there's a load, it would be a slight discount to book value or slight premium to book value, but it's—

but it's got to be pretty close.

It's always one. If you, if you're investing a dollar, you're getting a dollar worth of real estate at that time. And so that is a huge advantage if you actually want to own real estate. Honestly, the only way to do it is through private equity or you go, you go actively buy it yourself. That's really the only way. So the winner on a value scale is hands down, hands down, private REITs.

And we'll see this kind of come into play more when we talk about yields here in a minute, because as we know, yields are directly correlated to price. Right.

All right. So risk. And this is where investors are rightly concerned. So the feeling is that a public company is far less riskier than a private company. And I understand that. But so as we're talking about this, I really wanted to break it down into really what are the categories of risk? Because what does it— if we were to list a public company and what kinds of risk are the public markets protecting you from? And these public companies are highly regulated and they're regulated by the SEC. SEC, the Securities and Exchange Commission, and they, they, they are highly— they're very much, you know, in, in the grill of these, these companies. But really, the only thing that they are mitigating the risk on is fraud, right? Okay, that's the thing they can catch. Are you lying? Are you cheating? Is it a Ponzi scheme? They're going to be— they're going to be pretty good had getting that. They actually do not regulate for operational risk, meaning you made a goof in your, in your operation, or geographic risk, or macroeconomic risk, or over-leverage risk, or market risk, or any risk. They really don't regulate for that, and it's pretty hard to. The only thing they can regulate for is, you know, did you do all your disclosures right? Did you, did you treat investors the same? Did you, did you lie, cheat, or steal? You know, and those things, they're going to catch a lot of that.

Right.

So they are mitigating fraud risk pretty significantly. The other risk, and I think it's underestimated, but it's to me more important, is market risk, the risk of the value of your investment dropping. So let's say there's a real estate crash. Would you, you know, are you going to— is it more risky to own public company real estate in private— in public REIT or in private REIT? And I would say the winner there is going to be private REITs because you don't have— if you're buying real estate, your $100,000 bought $5,000 worth of real estate and the market crashes, that it's going to crash way worse. You're going to lose way more than— if the market drops 35%, you're going to lose way more in a public market. So, I think market risk is is far favors the private REITs. And then there's other kinds of risks like operational risk, geographic risk, risk, macroeconomic risk, leverage risk. And I would say all those things are pretty much a tie on the other kinds of risk. You can have bad operators in public companies and in private companies. You can have geographic risk or macroeconomic risk in all of them. And I know they're obviously, they're pretty the same. So overall, I think if you're concerned about fraud risk, public companies are definitely the way to go. If you're concerned about market risk, then private REITs are the way to go.

So I would even say too, on the fraud risk for private REITs is a lot of sponsors, and especially the larger sponsors, will receive audits from third-party CPA firms, right? Catches a lot of that, right? And can definitely add some, some comfort level to the fraud risk and it not being a Ponzi scheme.

And this is accountants going in and really doing a deep dive and making sure that these numbers look right. You know, it's what an audit is basically saying, right? And they're putting their name on it and doing a deep dive. So, so they're going to catch a lot of that. And I think investors are maybe a little too cautious. Cautious, especially with the good mid-tier operators. If you have your brother-in-law running a deal, you should probably— I'm not sure about that, but there's a lot of mid-tier operators that do multiple of these kinds of deals. They're running millions of dollars and professional operating teams. These guys are— they're not screwing up. If they're screwing up, it's here or there. And it's not any worse than a public company screw-ups, which are plenty too. So I think people overestimate the risk, the operational fraud risk.

I would even argue too, like when investors invest in REITs, they don't fully always know what they're investing in, right? It's not always clear.

Well, the book-to-value ratio is this case in point.

Exactly, but when you're investing in, you know, and we've looked at hundreds if not thousands of these kind of private equity deals. And it's— the reporting is really good a lot of times, and you see exactly what's going on at a very granular level, you know. And it's, in some ways, I feel like much more clear. It lowers the risk of—

because there's transparency, more transparency, right? For sure, for sure. Yeah, it's— you want to, you know, try to read an annual report or quarterly report of a public company. It's virtually impossible, even for professionals. On the other hand, truly, you know, we didn't put this in our report, but private REITs, they're far more understandable.

All the reporting.

All right. So here's the next one is the biggie, right?

It's the biggie.

It's returns.

How much am I going to make?

Where are you going to make more money? And this is probably the hands down the most important or the question people care about the most. And so as we're thinking about this, where do you make more money? Well, let's break it down into two components.

Okay.

Yield and appreciation. Yield and appreciation. And, and so yield is what you're going to get on a cash flow basis from the real estate.

Yep.

And then appreciation is what you're going to make when that real estate is sold. Yeah. So let's look at the, look at the two of those. Well, the first one is, is yield. And so as we just pointed out in the value gush on. The values of public REITs are way worse. The values, bang for your buck is way worse. Well, price and yield are inversely related. So, if the value, if the price you're paying is way high, your yields are going to be way low. So, if I paid $5,000 for a piece of real estate that's earning $1,000 a year, It's a great yield. If I paid $50,000 for that same piece of real estate that's earning the same $1,000, it's not a very good yield. Right. And so that's, that's the point here. So, so because public REITs are priced so high, their yields are much lower than private REITs. It's very common to see, to see, you know, private public REITs, you know, you know, in a 3.5% dividend. You're earning 3.5 times. And on the— in the private REITs, it's not uncommon to see yields, you know, approaching 10%. So quite a bit better, not uncommon at all. Um, so that makes sense. So the yields, yields, it's going to be a pretty big win for private REITs. So what about appreciation? And since public REITs are priced like stocks, it's actually pretty hard to determine that because if the stock stock market is frothy, then you're going to make a lot of money.

Yes.

The stock market is not frothy, you're not going to make money. And where private REITs actually appreciate with the appreciation of real estate. So, so, so, and in fact, I looked over the last kind of, you know, 20-year period and, well, it turns out they're not that dissimilar actually, appreciation. So that the public REITs grew about 15% per year and the private REITs based on commercial real estate averaged about 13% a year, both incredibly good. Yep. Although I will point out that it's been a bull market, you know, since 2009. And so, you know, that you got to take that, take that into account. And who knows if that's going to be sustainable, right? You can't say that's going to be sustainable. But, but because of the yield win, I'm going to have to give this as— I'm going to have to give this to the private REITs. Right. All right. So volatility is the next one. This is a biggie. And volatility is something we've talked about quite a bit. Talk about volatility for a second.

Yeah. So when a REIT is publicly traded, obviously it trades on the stock market. And because of that, there is volatility. So depending on what the market sentiment is and how the economy's doing, depending on the whims of emotions of the, you know, some of investors at that point, the price can change and sometimes very dramatically. And so one of the things that you don't have in private REITs is much volatility. Because these are locked in, right? These are investments you make one time and then you usually hold for 3 to 10 years and you can't get in and out of them. So there's just not market sentiment driving the value of those. But in the public REITs, you know, the liquidity is a double-edged sword. Liquidity is great because if you have an emergency or whatever and you need your cash, you can get it out. But it's also bad because it can—

If you want your liquidity at the same time when everybody else wants their liquidity, it's not a pretty picture.

Mixture. And one of the things we've broken down in other articles before is that volatility is the ultimate killer of compounding over time. If you want to compound and you've heard about the 8th wonder of the world, which is compound interest, volatility will completely subvert your goal in attaining that because every time you have a drawdown, you have to earn usually more than your drawdown was just to get back to par. And so as you keep having this volatility, which is basically just the variance in price over time and how big is that variance, it gets very difficult. Even though an average return might, might be okay, your actual compounding in absolute return will be lower.

Right. So and just for instance, the, the Public REIT EQR, which is an office real estate, office real estate yielding 3.5% yields. Not too exciting, but so just since 2000, I looked at the drawdowns of 20% or more. So this means where the stock price dropped by 20% or more. And guess what? 7 times just since the year 2007, including, uh, one time that you lost 45%, meaning almost half of the value went down. So if you're $100,000 went down to $55,000. And another time, 68%. So where your, your $100,000 dropped to $32,000. Yeah. How does that feel? I mean, so, so, so in order to earn this 3.5% yield, you're taking an enormous volatility risk. And that's just a non-starter for me. I— that's, to me, it's I can't even bring myself to buy a public REIT because of the volatility risk. And the public markets trade primarily on emotions. A lot of investors will tell you that public markets are traded on information. And in fact, it's traded much more on emotion than actual mathematics or information. So, we're going to have to give this one volatility definitely to private REITs because they're basically not volatile. All right. Leverage is the next little component we're going to use, which is how much debt do you put on? And leverage, of course, is a double-edged sword, right? Leverage can boost your returns, but it can also be dangerous. Yeah. You're going to burn your house down.

I feel like this is one that, in my mind, should be one of the top things that we evaluate riskiness and just quality on is how much leverage.

As a banker, I mean, you're a guy that really understands. I mean, you underwrote a lot of deals as a banker and leverage is a very big deal. Yeah. And something bankers pay a lot of attention to and investors should as well.

Yeah. And a lot of retail investors don't know how much it can impact both positively and negatively an investment. And so it's really important to look at what is the leverage that is driving the returns that you're getting. Because if it's 90 or 95% leverage, right, you know, that's an extreme.

You can really juice your returns.

Yes.

But boy, if that thing goes against you, you're wiped. Yes, you're wiped. So, so leverage in, in, in private REITs is typically what?

Private REITs, you're going to see anything depending on the asset class, I would say 60 to 80%.

Right.

As a general rule?

I would say 2 to 1. So $2 of debt for every dollar of equity.

That's probably about the average.

And that's generally the range you're going to see. And sometimes they're just 1 to 1. So you'll see a dollar of debt for every dollar of equity. And these are pretty safe. So meaning that if the price of that equity goes down, the value of that equity goes down, you still don't owe more. You're not risk of owing more than it's worth. And that means you can sustain, hopefully sustain that property through whatever this downturn is and not have to sell it out. Now, public REITs are well known to be much more highly leveraged. So, it's not uncommon to see 10 to 1, meaning these are leveraged, they only have 10% equity and the rest is all debt. And because debt is so cheap. Cheap to these public companies, they can lever to the hilt. So it's not uncommon, like I said, to be leveraged 5 to 1. For example, the apartments REIT that we looked at, which was a multiple of 5 times the book value. So you're paying 5 times the price of the real estate in order to buy a share of these apartment REITs. Right.

On top of 5 times leverage.

And it's also 5 times leverage. So basically it's just, it's super risky. Right. And so just pay attention to the leverage. Again, the winner is going to be, going to be private REITs. So, all right. So the last kind of category you want to look at is transparency, which is, this is knowing what you're buying, knowing what you're buying. And so in public companies, it's almost impossible to actually find out what actual homes are loaned or owned or what apartment complexes are owned. It's very, very difficult. What often, you know, sometimes there's some little bit of data you can figure that out, but it's generally not that easy to understand. It's probably a little bit more transparency in private REITs. There, you know, it's more, it's easier to find the actual properties that you own, but even there, it's not probably as transparent as someone would like. If you really want to know what do I own exactly, and I want to go visit it and knock on the doors and whatever, then you probably want to do neither of these and you want to do a private syndication where here's the apartment complex I own and that kind of thing. But so for transparency, I'd probably give a slight edge to private Private REITs, but we're going to just call that a tie officially. All right. So final things to consider is, you know, is your strategy, what kind of assets do they typically own? So talk through the kind of, you know, REITs, which typically go after the Class A properties versus the private private REITs?

Yeah, because public REITs are so large from a market capitalization standpoint, they're really going after scale, right? And, and that's really the appeal that they have. And so, um, really, you know, the, the way to scale is to go to Class A because these are usually much bigger apartment complexes and they're much pricier, um, and so they cost more. And so the public REITs are generally buying Class A properties and You know, we see some Class A offerings and, you know, think that there is some value that can be created there. But generally it is harder to move the needle in creating value in a Class A apartment building because these are newer construction. A lot of times they're coming in where they're bringing, you know, rents to market already and other things you can do to drive value. You're generally going to be paying a premium for Class A. And part of that does drive the return profile that you're seeing in the public REITs, whereas private REITs and private syndications and private funds, again, as we're kind of lumping these all together, focus generally more on the Class B and the Class C properties, usually older properties that are in good areas.

Which may not sound as good, but they actually can make more money and they have a greater ability to appreciate the value through value-add kind of programs.

Exactly. And so that's kind of the very general classifications of, you know, what types of assets the REITs are buying. And, you know, from a portfolio standpoint, as an investor, it's, you know, we think diversification is good. And so, you know, it's good to have exposure to different asset classes. But there are actually a lot of private REITs as well that do invest in Class A apartments and again, will have some advantages over maybe a public REIT.

So let's wrap it up. Our overall winner is?

Well, we're a little biased, but.

Are we?

But I think that the data's pretty clear, you know? And I think that that's why we're seeing this huge just movement of investors of being excited and seeing what's out there and what's available to them in these private syndications and private funds and private REITs. And I think we're still at just the beginning stages. So.

Yeah, so pretty much, you know, the private REITs are clear winners in several areas. The public REITs are clear winners in liquidity, ties and others. But we, an objective observer, really needs to give the advantage to the private REITs looking at really investor things investors should be concerned about. So it's definitely something that you want to be looking at in the private real estate. And I think most people, once they start to get into private REITs—

Never going back.

They really don't go back. And no one does. I mean, really no one's that interested in that. So yeah, dip your toe in the public markets, but you're going to, you know, the smart investors are going to end up in the private markets.

Yeah. And I would just say too, if you're kind of newer to the world of private equity, real estate investing, private REITs, and you're just concerned about, you know, the fraud risks and these other kind of things, there's some great episodes we've done interviews with a few individuals, Lance Peterson, Jim Pfeiffer in previous episodes where they talk about how to do due diligence on these kind of sponsors and what to look for and really how to find the best-in-class operators.

Yeah, but there is a lot of great operators out there that when you find them and, you know, you're going to have great results. We have these guys and everybody makes mistakes, but these are honest, hardworking, very smart people. And so that's, that's where you, that's where you're you're going to end up going.

I want to make a final note too. We're going to be putting this kind of thought piece together as a blog post as well as a download white paper. And obviously there's a lot of information, so maybe your head's spinning a little bit and trying to remember some of the things we said, but we're going to have this where you can download it, you can share it with your friends and family, and hopefully just be a good kind of useful tool as you're evaluating your options. So thanks. Hope this was helpful. And, and cleared up some questions that you had. So thanks again for joining us.

Prosperous investing.