Securitized real estate refers to the process of pooling real estate assets and packaging them into securities. These securities can then be bought and sold by suitable investors, allowing them to invest in real estate without directly owning the physical property.

The securitization of real estate typically involves the creation of a special purpose vehicle (SPV), which is a legal entity that holds the real estate assets and issues the securities. The SPV issues bonds, notes, or other types of securities to investors, with the real estate assets serving as collateral for the securities. The securities are then sold to investors in the capital markets.

The securitization of real estate can take many forms, including residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and real estate investment trusts (REITs).

RMBS are securities backed by pools of residential mortgages. The mortgages are typically originated by banks or other financial institutions and then sold to the SPV. The SPV then pools the mortgages and issues securities backed by the underlying mortgages.

CMBS are securities backed by pools of commercial mortgages. The mortgages are typically taken out by owners of commercial real estate, such as office buildings, retail centers, or industrial properties. The mortgages are pooled by the SPV, which then issues securities backed by the underlying mortgages.

REITs are investment vehicles that own and operate income-producing real estate assets. REITs allow investors to invest in real estate without having to directly own the underlying assets. REITs are required to distribute at least 90% of their taxable income to shareholders as dividends, making them attractive to investors seeking the potential for regular income.¹

Securitized real estate provides several potential benefits to investors, including:

1. Diversification: Securitized real estate provides investors with the ability to invest in a wide range of real estate assets across different geographic regions and property types.
2. Access to professional management: Investors in securitized real estate benefit from the expertise of professional asset managers who oversee the real estate assets.

1. Potential for higher returns: Securitized real estate may provide investors with the potential for higher returns compared to other investments.

However, securitized real estate also comes with some risks, including but not limited to:

1. Market risk: The value of securities backed by real estate assets can fluctuate based on changes in the real estate market.
2. Credit risk: Investors in securitized real estate face the risk that the underlying real estate assets may default on their mortgages, leading to potential losses for investors.
3. Liquidity risk: The liquidity of securities backed by real estate assets can be affected by changes in market conditions, making it difficult for investors to buy or sell the securities at fair prices.

Overall, securitized real estate may provide investors with a way to invest in real estate, providing, diversification, and potential for higher returns. However, investors should carefully consider the risks before investing in securitized real estate, and work with a qualified financial professional to determine if this type of investment is appropriate for their portfolio.

¹ Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated.

Because investor situations and objectives vary this information is not intended to indicate that an investment is appropriate for or is being recommended to any individual investor.  

This is for informational purposes only, does not constitute individual investment advice, and should not be relied upon as tax or legal advice. Please consult the appropriate professional regarding your individual circumstance.

There are material risks associated with investing in real estate securities including the potential loss of the entire investment principal, illiquidity, tenant vacancies impacting income and revenue, general and real estate market conditions, lack of operating history, interest rate risks, competition, including the risk of new supply coming to market and softening rental rates, general risks of owning/operating commercial and multifamily properties, short term leases associated with multi-family properties, financing risks, potential adverse tax consequences, general economic risks, development risks, long hold periods, and investors should read the PPM carefully before investing paying special attention to the risk section.

A REIT is a security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate. There are risks associated with these types of investments and include but are not limited to the following: Typically, no secondary market exists for the security listed above. Potential difficulty discerning between routine interest payments and principal repayment. Redemption price of a REIT may be worth more or less than the original price paid. Value of the shares in the trust will fluctuate with the portfolio of underlying real estate. Involves risks such as refinancing in the real estate industry, interest rates, availability of mortgage funds, operating expenses, cost of insurance, lease terminations, potential economic and regulatory changes. This is neither an offer to sell nor a solicitation or an offer to buy the securities described herein. The offering is made only by the Prospectus.

Mortgage-backed securities (MBS) has associated risks, such as the prepayment risk (when borrowers decide to pay the principal on their mortgages ahead of schedule), uncertain cash flows, convexity, interest rate risk, extension risk (the borrower decides not to make expected prepayments), and credit and default risk (if the borrower fails to make their interest and principal payments).

Investment advisory services offered through Bangerter Financial Services, Inc., a state registered investment advisor. Securities offered through Concorde Investment Services, LLC. (CIS), member FINRA/SIPC. Bangerter Financial is independent of CIS.