Investing in commercial real estate just became easier

McCool had wanted to add commercial real estate to her portfolio, but “between the significant costs and not knowing anything about managing it, I was intimidated,” she says. So, when the 37-year-old day-home owner from Grande Prairie, Alta., saw an ad on social media for Willow, a company that sells fractional ownership in Canadian commercial properties, she jumped at the chance to get into the market.

McCool visited Willow’s website and learned about the company’s PropSharing model, which lets investors buy and sell shares of commercial property in much the same way stocks are traded. Willow buys the properties and divides them each into 100,000 units of ownership, which are sold on its digital platform.

What appeals to McCool is that she can invest in different markets across the country, and professionals handle the day-to-day maintenance and tenant management. She also likes the flexibility of picking and choosing properties as they become available, as well as “being able to purchase a little or a lot,” depending on her opinion of what’s offered.

Currently, Willow sells shares in two properties, one in Toronto and one in Ottawa. McCool has bought 40 shares, for a total investment of about $850. “When the properties sell in 10 years, then I will see a return,” she says. In the meantime, fractional ownership with Willow requires no yearly maintenance fees (as a timeshare would), and McCool’s money is getting a higher return than it likely would in a savings account.

A new way of investing in real estate

Investing in commercial real estate can be prohibitively expensive for individuals—in addition to a large down payment, buyers also need capital for repairs, renovations and mortgage payments. Until recently, however, the most accessible option for investors interested in commercial properties has been buying shares in real estate investment trusts (REITs), which own portfolios of income-producing properties such as apartment buildings, warehouses and malls.

Many REITs are traded on stock exchanges like equities. They’re a convenient option, but they can be volatile, and they may charge high management fees. What’s more, investors have no say in which properties a REIT holds. Some REITs are private, and they’re available only to institutional and accredited (high net worth) investors.

Before he launched Willow, CEO Logan Yergens had been contemplating group buying of real estate for a number of years. With commercial real estate being so exclusive, he kept thinking, “How do you make that accessible to the general population?”

Three years ago, similar to how online brokers simplified stock investing, Yergens and his team launched Willow with the goal of making it easy to buy and sell shares of commercial real estate. “For everyday Canadians, the ability to buy commercial property has been so far out of reach,” he says. Until now.

How to start investing with Willow

Willow’s goal is to find and buy commercial real estate—purpose-built multi-residential apartment, office, retail, industrial and mixed-use buildings—that is likely to appreciate over time, and to provide investors with returns when the properties are eventually sold. To purchase shares, investors open a free Willow account and transfer in funds from their bank.

Money from investors goes towards paying a property’s mortgage, and dividends are paid out monthly, after expenses are paid. Each property has a six-month reserve fund for unexpected expenses, such as repairs.

In terms of fees, “they are among the lowest in the industry,” says Yergens, adding that the average fees for real estate investment vehicles in Canada are around 2% per year, plus performance fees as high as 50%. Willow charges investors a $4.99 trading fee, a 0.5% annual management fee and a 1% property acquisitions fee.

Willow currently owns a commercial property at 356 Queen Street West in downtown Toronto, which it acquired for $8.25 million, and 388 Richmond Road in Ottawa, purchased for $2.85 million. Recent appraisals put the value of the Toronto property at $9 million and the Ottawa property at $2.87 million.

The company is set to buy three more properties in the coming months, and Yergens wants to have 10 or more properties in total, in a variety of places across Canada. He says the company is looking for buildings with great locations in growing markets, “strong fundamentals in the asset class, whether it’s apartments, office, retail or industrial,” and high tenant quality. Together, he says, these factors can drive long-term rental rate growth and maximize revenue and investment returns.

“You’ll be able to pick and choose your properties,” says Yergens. “We think of ourselves as REIT 2.0, but without the volatility.”

In addition to creating investment opportunities, Willow prides itself on being a good landlord. “We want to have a portion of rent go towards owning,” Yergens says. “It’s a good ecosystem of tenants and owners.” He adds that maintenance issues at Willow’s properties are addressed promptly. “We want to be accountable to our clients.”

McCool is certainly excited about her foray into commercial real estate. She plans to buy shares in additional properties when Willow augments its offerings: “I think there is a huge opportunity to be had with Willow.”

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