How To Make a New Asset Class
Five steps to turning a novel real estate product into a new, institutional-grade asset class.
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Cold Storage. Student Housing. Data Centers. Self-Storage. All emerged from the fringes of the real estate industry over the past twenty years to become established categories with dedicated investors, proven operators, and robust markets for stabilized assets. And through that emergence, early operators and investors made billions off growing institutional interest and cap rate compression.
For that reason, many operators with new real estate concepts see ‘building a new asset class’ as the ultimate aspiration of brick-and-mortar innovation. With it comes investor interest, legitimacy, and—ultimately—asset-level appreciation.
Of course, real estate isn’t the only financial sector capable of creating new types of assets, and looking beyond real estate can offer worthwhile lessons on how new asset classes are established and legitimized. The market for secondary stock in private startups, for example, barely 20 years ago until increasing regulation and shifts in financial markets pushed more companies to delay IPOs, increasing demand for stock in private companies. Today, secondary private stock trades are commonplace and draw numerous investors.
So how does a new asset class take form? By studying multiple examples of asset class development, we can build a roadmap to make it happen. Today, we’ll tackle:
Concrete steps a category can take from a novelty to an institutional-grade sector;
Examples of how operators and categories have succeeded (or failed) at each;
Benefits and pitfalls of building a new asset class.