CRE investment is like any other type in some ways, including equities. There are different ways of investing in stocks: purchasing those of individual companies or putting money into something like an index fund.
When CenterSquare talks about platforms in its 2024 Strategic Capital Outlook, it is the difference between investing in individual properties or a portfolio of assets, whether through something like a fund or REIT structure.
Investment in individual assets offers a number of advantages. One is of control, "allowing investors to shape decisions, dictate financing terms, and, with certain lockouts, exercise authority over the timing of asset sales or liquidity creation."
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There are also disadvantages, like the need for fast underwriting that can respond quickly to opportunities. The underwriting includes due diligence, working with partners in doing acquisitions, and securing financing. Success comes down completely to individual assets, which concentrates risk and makes its management more difficult.
In contrast, platform investment spreads risk across a portfolio of assets. "Moreover, platform investments leverage economies of scale, benefiting from secured financing and efficient entity-level financing akin to the advantages reaped by REITs." There are also downsides, as "platform investments may compromise liquidity and control compared to the familiar terrain of a traditional 90/10 joint venture, even though they offer opportunities to influence strategic decisions at a board level."
Something necessary for a good platform, as they argue, are the following characteristics:
- A mix of quality companies all of which benefit from positive market forces;
- Quality management that has proven its ability to successfully direct investment;
- Exit timing at closing that offers enough time for return on investment and reaching full market value; and
- Beneficial pricing compared to public markets that pays for having investments that can be illiquid over time and where the investors lacks control.
The firm is looking at two major types of assets to hold. One is healthcare, where an aging population needs not only care delivery, but specifically senior housing. The growth in need has paradoxically been met with a decrease in availability, "as construction starts have decreased over 70% from their peak levels in the middle of the last decade."
The second major type they're focusing on is data centers, especially in development. "There was a record year of data center leasing in 2023, with leases surpassing 4,500 megawatts, with over 1,500 megawatts signed in the fourth quarter alone," they write.
They're also looking to work in fragmented markets that lack significant amounts of institutional ownership.
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