A.CRE

Balance Sheet Investing

When an investor uses its own funds to invest in a real estate asset. This is in contrast to using 3rd party funds (when referring to equity) or securitization proceeds (when referring to debt).

Putting ‘Balance Sheet Investing’ in Context

Imagine a company, OakLife, a 125-year-old life insurance company that invests the life insurance premiums it collects each month into various investments including real estate. Oaklife has $120 billion of assets under management, of which $30 billion is allocated to real estate.
The firm needs to deploy $1 billion to real estate equities this year, and so they decide to invest a portion of that into an existing mixed-use asset called “CityGate Plaza,” in the heart of downtown Springfield. CityGate Plaza includes a 350 residential units and 50,000 square feet of retail.

OakLife uses its balance sheet (i.e. balance sheet investing) for this asset. Instead of raising external equity, they allocate $50 million from their own balance sheet. This approach not only demonstrates OakLife’s strong financial position but also gives them full control over the asset’s operations and profit.

  • Assets: Increase due to the addition of CityGate Plaza as a property asset.
  • Liabilities: Remain stable as no new debt is incurred.
  • Equity: Reflects the invested $50 million.

This strategy allows OakLife to streamline decisions and capitalize on the full financial benefits of CityGate Plaza, assuming all risks and rewards internally.

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