Defining AN ILLIQUID ASSET
How liquid is Commercial Real Estate?
To know what liquid and illiquid assets are, you must first understand market liquidity. In simple terms, liquidity is the ease with which any given asset can be converted into cash without reducing its price. You can also describe liquidity as the ease of acquisition or disposition. So, if you can easily turn an asset into cash, it’s a liquid asset. Liquid assets are the most common. They include stocks, mutual funds, savings accounts, and more.
However, if it’s difficult to turn it into cash without losing its value, then it’s considered an illiquid asset. Commercial real estate is often defined as an illiquid asset because, under normal circumstances, you can’t sell an apartment building for cash in the way you could sell a car for cash. Other examples of illiquid assets include private company interests and niche collectible items, but real estate is the most common illiquid asset. Commercial real estate, because of its high value, is even less liquid than residential real estate in many cases.
Advantages of Illiquid Assets
Diversification: Everyone wants to have a diverse portfolio. Illiquid assets can offer diversification benefits because of their lower correlation with the broader stock market.
Less Volatility: The value of illiquid assets is likely to remain stable over time since the price isn’t updated as regularly as publicly-traded securities.
Security in Down Markets: When an asset isn’t directly correlated with the stock market, you’ll have fewer portfolio losses in a down market.
Disadvantages of Illiquid Assets
Hard to Offload: Commercial properties tend to take longer to sell and depending on the market conditions it may not always be the best time to cash out. These assets
Higher Risk: Illiquid assets are inherently risky because you can’t easily convert them to cash should the need arise.
Less Flexibility: You have less flexibility with illiquid assets because you can’t simply sell them off and change your investment strategy within a short timeframe.
So, if you have a high-risk tolerance and a long timeline, illiquid assets may be right for you. However, even if you are a good candidate for illiquid investment options, you still need to plan an exit strategy from the very beginning.
Exit Options for Illiquid Assets
If you hold illiquid assets and you’re looking for exit options, there’s good news: even though illiquid assets are inherently difficult to offload, it’s possible to do so without incurring significant losses. There is a secondary market for illiquid assets, allowing you to create liquidity options. This is true whether your illiquid assets consist of securities, durable goods, real estate, or any other assets.
Do you need to convert commercial real estate holdings to cash quickly, efficiently and confidentially? With timely solutions to your problems, Marketspace Capital is here to help you achieve liquidity, creating valuable opportunities and letting you adjust your investment strategy to better meet your needs.
Contact MarketSpace Capital today by giving us a call or sending an email to firstname.lastname@example.org
MarketSpace Capital, LLC is a Houston, Texas-based private equity real estate development firm focused on ground up developments and value-add investments throughout the United States.
Disclaimer: *For sold properties, actual sales price is reported. For active investments, the Estimated Current Value is based on the Managing Member’s estimate of current value. Recent acquisitions are generally valued at the acquisition price. Values may be internally prepared. This web-page/website is for informational purposes only and is qualified in its entirety by reference to the Confidential Private Placement Memorandum (as modified or supplemented from time to time, the “Memorandum”) of any offering of MarketSpace Capital.