Some Real Estate Investors Are Putting More Money in One Basket

While funds own scores of buildings around the country, these people are instead joining others in groups to buy specific buildings in particular places.

By Paul Sullivan

Peter Starrett and Sharon Arthofer are wealthy investors who come from different business backgrounds, but both are looking to put more of their money into an asset that has suffered during the pandemic: real estate.

For many investors, that would mean choosing funds that buy scores of buildings around the country. Instead, Mr. Starrett, who ran several retail companies before becoming a private equity executive, and Ms. Arthofer, an entrepreneur, are investing directly in specific buildings in just a few places.

The strategy is riskier — putting several million dollars, for instance, into one residential building versus using that same amount to invest in dozens of buildings. If the investment works out, however, it will offer greater returns and tax benefits.

That’s a big if, especially in the pandemic, when certain classes of properties, like offices, stores and restaurants, have been hit particularly hard by vacancies and tenants unable to pay their rent. But people like Mr. Starrett and Ms. Arthofer argue that they have more control when they invest in particular buildings with a group of other individuals.

“There’s no doubt this has really been an eye opener,” Ms. Arthofer, of San Marino, Calif., said. “Brick-and-mortar retail has completely changed.”

Or as Mr. Starrett, who lives in Los Angeles, put it: “I had big questions about it in March when I couldn’t do anything. But I’ve been through a few of these downturns in the past, and I’ve learned patience.”

Real estate is likely to remain a favorite of wealthy investors because it can be owned indefinitely, has predictable cash flow and usually appreciates in value. But investors are looking for different types of real estate than they were at the beginning of the year, according to a report released on Monday by Withersworldwide, an international law firm. The firm talked to people who work in property and land development as well as academics, architects and hospitality workers about what the future of real estate might look like.

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