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.

Frequently Asked Questions about Balance Sheet Investing

Balance sheet investing is when an investor uses its own funds to invest in a real estate asset, rather than relying on third-party capital or securitization proceeds.

Unlike third-party equity, where outside investors share in the risk and return, balance sheet investing uses internal funds, meaning the investor retains full control and assumes all risks and rewards.

In the case of OakLife, a life insurance company, they allocated $50 million of their own capital to acquire a stake in CityGate Plaza, a mixed-use development. This was done without raising outside capital—using funds from their own balance sheet.

Assets increase due to the property acquisition, liabilities remain unchanged since no debt is incurred, and equity reflects the invested amount, in this case $50 million.

It allows for full operational control and ownership of returns. It also demonstrates financial strength, as the investor can fund deals internally without external capital.

The investor bears 100% of the financial risk, including operational losses, valuation declines, or underperformance of the asset.

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