Alternative Funds

Preferred equity, or preferred stock, is often considered a hybrid security. While it shares many characteristics with debt instruments, it also offers investors the opportunity to seek to mitigate risk. Unlike common equity, preferred equity investors have the possibility of receiving a fixed annual return on their initial investment, and the potential for cash flow distributions are received prior to common stock shareholders. These options are attractive to investors as they target higher-fixed income payments, and shareholders have priority claim over dividends and liquidation proceeds if a company defaults.

Companies leverage preferred equity as a unique form to finance real estate investments or developments. There are different types of preferred equity, offering investors the potential for varying returns and risks. The most common include cumulative, callable, convertible, participating, and adjustable-rate preferred stock (ARPS).

A real estate investment trust, or REIT, is a corporation that owns and/or manages income-producing commercial real estate. When individuals buy a real estate investment trust (REIT) share, they are purchasing a share of the company that owns and manages the rental property. Shares of publicly traded REITs can be purchased and sold as easily as other stocks, even on a daily basis, thereby providing significant liquidity to investors.

Many types of REITs exist. Most focus on a specific product type (e.g., retail, hospitality, multifamily housing, senior living facilities, student housing, office space, self-storage, industrial, and so on) or geography (e.g., commercial real estate in the Northeast vs. Southwest).
Interval Funds

An interval fund is a type of closed-end fund that offers liquidity to investors at stated intervals – typically quarterly, semi-annually, or annually. This means investors can sell a portion of their shares at regular intervals at a price based on the fund’s net asset value. However, there is no guarantee that investors can redeem their shares during a given redemption period. As such, interval funds should generally be treated as long-term investments that, in turn, will usually offer the potential for an illiquidity premium in exchange.

Interval funds can be used to invest in many securities and asset classes, including, but not limited to, real estate. A single interval fund is not limited to investing in a single asset class; in fact, it can invest in various assets as a means of diversifying its holdings.

A real estate income fund is a specific subset of funds that focuses exclusively on investing in income-generating real estate. Real estate income funds provide another entry point for those looking to invest cash in large commercial real estate portfolios. Real estate income funds are particularly appealing to retail investors who want to own institutional-quality real estate that would otherwise be out of reach to them. A real estate income fund pools capital from many investors, and then the fund’s sponsor oversees all of the fund’s activities – from due diligence and underwriting to property renovations, stabilization, ongoing management, and eventually disposition. Depending on the nature of a real estate income fund, the fund can have different investment minimums as well as lengthy hold periods, and, therefore, the capital invested should be considered illiquid during that hold period.

There are dozens, if not hundreds or thousands, of different types of investment funds, including equity funds, bond funds, money market funds, mutual funds, and hedge funds.