Pooling Money for Commercial InvestmentsThe CCIM Institute reports that more commercial real estate investors are pooling their money and the amounts of money being raised have jumped significantly in the last decade. However, the number of partners in a given syndicate or investment group has simultaneously been decreasing, signaling investors are being more cautious about who they team up with.

So what aren’t they telling you about pooling money to invest in commercial real estate?

There are many attractive commercial real estate investment opportunities in New England, especially in secondary markets like Worcester, MA and surrounding areas where the cap rates can be much more attractive than in Boston. Still, with increasing competition, there are many advantages of pooling money to invest.

Partnering up can offer the advantages of others’ expertise, being able to act as a cash buyer on larger acquisitions for speed, deeper discounts and better returns as well as enabling individuals to diversify their holdings among multiple properties.

However, not all of these commercial investment opportunities are created equal and it pays to carefully assess the pros and cons of investing with different parties.

Public REITs have become a hot vehicle in the last year and are expected to continue to be a large global investment force in 2013. However, the speed at which they are being launched also lends to poor decision making in addition to the high volatility and low yields they often come with.

In comparison, private partnerships offer many advantages but a need to perhaps be even more diligent in selecting partners.

One of the biggest concerns should be who the management team is. What’s their track record, what’s their long term strategy and how are they really making their money?

Are they fluffing up the costs on every possible line item or are they outsourcing full service property management to an independent third party? Do they take a flat fee or is their compensation incentivized and based on the performance of the investment?

Equally important in any joint commercial real estate investment is determining control. How much control over the investment do you have? When can you elect to make decisions or sell out?

Private partnerships do offer more security via direct investment in a hard asset where public REITs do not. However, if your partners are not sophisticated or well enough off financially will they fold when you want to hold and dim your returns? Find out how other participants are vetted. Are they simply asked to sign a piece of paper stating that they qualify as sophisticated investors or are they really screened and do they have the same strategy and timeline as you do?

Ultimately, no matter how attractive the investment it is always wise to have comprehensive legal paperwork and know when to contact a lawyer.