Private Equity Real Estate
Given the risks associated with private equity real estate investments, an investor can lose all of its investment if the fund performs poorly. This is balanced by the potential benefits of annual returns, which can range between 6% and 8% for funds pursuing core investment strategies, between 8% and 10% for core plus strategies, between 8% and 14% for funds pursuing value added strategies, and between 18% and 20% (or higher) for funds pursuing opportunistic investment strategies. For the above-mentioned reasons, private equity fund investments are only suitable for those individual or institutional investors who can afford to have their capital locked in for long periods of time and who are able to risk losing significant amounts of money.
Accredited investors typically include moderate to high net worth investors who can satisfy the suitability requirements of these offerings. Private placements of real estate securities are exempt from registration with the SEC, and issuers of these securities are prohibited from making a general solicitation for these offerings. Institutional Investors – Institutional private equity real estate investors include pension funds, endowments, foundations, family offices, sovereign wealth funds, insurance companies, publicly traded and listed Real Estate investment Trusts (REITs), non-listed private REITs, and other forms of public or private real estate operating companies, venture capital operating companies as well as other specialized types of investment companies.
There is a long history of institutional investment in real estate through direct ownership of property, through individually managed separate accounts, and through pooled investment funds. Private equity real estate emerged as an independent asset class in the beginning of the 21st century and has experienced huge growth in recent years. Initially institutional real estate investments were in core real estate, however, market conditions in the early 1990s led to the emergence of value added and opportunistic funds which aimed to take advantage of falling property prices to acquire assets at significant discounts. This section needs additional citations for verification.
The properties will require a high degree of enhancement. Some opportunity funds also will invest in securitized or non-securitized public or private debt instruments, with the objective of privatizing, repackaging, restructuring and then selling off these interests. This strategy may also involve investments in development, raw land, and niche property sectors. Investments are tactical, and may also include financial arbitrage strategies or strategies focused on unwinding or working out complex financial structures or large, improperly leveraged portfolios. Opportunistic strategies can employ leverage levels up to 60% or higher.
Kennedy, E. Richard; de Haan, Ellen Hirsch. In Stephen E. Barton & Carol J. Silverman (ed.). Homeowners Protection Bureau, LLC. Barton & Silverman 1994, p. Berkeley, California: Institute of Governmental Studies. Sproul, Curtis (1994). “The Many Faces of Community Associations under California Law”. Barton & Silverman 1994, p. Washington, D.C.: Urban Land Institute. Mields, Jr., Hugh (1973). Federally Assisted New Communities: New Dimensions in Urban Development. Common Interest Communities: Private Governments and the Public Interest (PDF).
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