Sharing insider information and insider trading is a nefarious act in the financial world. NASDAQ defines insider information as “Material information about a company that has not yet been made public,” while the SEC defines illegal insider trading as “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security.” The SEC has determined that, when trading listed securities, acting on information that is not available to the broader market constitutes an unfair advantage that is criminally or civilly punishable by law, depending on the circumstances.
Real estate private equity stands in stark contrast when it comes to obtaining and acting on insider information. In fact, the equivalent concept in commercial real estate is simply referred to as “imperfect information” and the industry thrives on it. So, not only is obtaining and acting on information that is not publicly known legal, it’s often the foundation of a good deal.
If a deal is struck between a seller and a buyer but the buyer has material information about the asset that is unknown to the seller, then that information is inherently not priced into the transaction. This means that the value of the asset, assuming all available information is priced into it, is likely higher than the transacted price. In industry parlance, such a transaction is referred to as “buying right.”