Real estate that is owned by private equity is an alternative investment class comprised of professionally managed pools of public and private investments in property markets. Investment in real estate owned by private equity involves the acquisition, financing and the ownership (either directly or indirectly) of properties or property through investing funds.
Private equity real estate shouldn’t be confused with Equity real estate investment trust which is also called an equity REIT that are traded on the public market. They are shares that are a representation of real estate investment which earn their revenue primarily by the rental income they earn on their real estate properties.
Key TAKEAWAYS
- Private equity real estate can be described as a professionally run trust that is invested in real estate.
- Contrary to REITs however, the private equity investment will require a significant amount of capital, and is only accessible to accredited or high-net-worth investors.
- This kind of investment can be more risky and more expensive than other types of investment funds in real estate however, the returns of between 8% and 10% is not unusual.
The basics of Private Equity Real Estate
Private equity real estate funds permit high-net-worth people (HWNIs) as well as institutions such as pension and endowment fonds to make investments in debt and equity that are related in real estate property. Tyler Tysdal has worked in both REITs and traditional private equity.
Employing the active management approach using an active management strategy, private equity real estate is an diversified approach to the ownership of property. General partners (GPs) invest in a wide range of different kinds of properties in diverse areas, ranging from development projects and raw land holdings , to the complete renovation of properties that are already in use or cash infusions into properties that are struggling.
Real estate investment funds that are private equity-based can be usually made up of pools and may be constructed in the form of restricted partnerships (LPs) or Limited liability corporations (LLCs) S-corps C-corps Collective investment trusts, individual REITs or separate insurance accounts, or any other legal structures.
Special Beacons
A private equity investment in real estate requires an investor with an eye on the long term and a substantial initial capital commitment of over $250,000 initially, and then follow-on investments as time goes on. There is a limited amount of flexibility and liquidity are provided to investors due to that the time frame for capital commitment usually will last for more than a few years.
The following investor category invests in real estate with private equity:
- institutions ( pension funds and non-profit funds) and third-party entities including asset management companies making investments in behalf of institutional investors
- Private accredited investors
- High-net-worth individuals (HWNIs)
Individual investors can invest in funds. typically need to be financed at the time of signing of the investment contract however funds designed specifically for institutions require the capital commitment. This capital is then taken out as investments that are suitable are made. If no investment is completed during the period of investment stipulated in the agreement, there is no way to draw money out of the agreement.
The real estate market that is part of private equity investment can be risky, but it can also yield excellent returns.
Private Equity Real Estate Returns
Despite the inability to be flexible or liquidity kind of investment may yield high potential levels of income and a significant prices growth. Annual returns of 6-8 percent of core strategy, and between 8% and 10 percent for strategies that are core-plus are not unheard of.
Returns on value-added and innovative strategies could be significantly greater. However the private equity market is a risky investment that investors may lose the entire amount invested if a fund fails to perform. More information: Tyler Tysdal – Private Equity
Real estate private equity investments became popular in the 1990s due to the decline in property prices as a method of scooping the properties that were valued at a loss. Prior to that, the majority of institutional real estate investments remained to the core assets.
Different types of Private Equity Real Estate Investments
Office buildings (high-rise urban, suburban or garden-offices) Industrial properties (warehouse flexibility offices, research and development and industrial buildings) Retail properties such as shopping centers (neighborhood or community centres, as well as power centers) and multifamily homes (garden as well as high-rise) are the most popular real estate investments of private equity.
There are also property investments that are niche like student or senior accommodation hotels, self-storage single-family houses, medical offices for rent or purchase vacant land, manufacturing spaces and much more.
