The private equity real estate fund is an asset class that has both private and public property investments. Values of the private equity real estate funds fell in the mid-1990 and since then it became a popular way to gain properties. Investors in this asset class invest through a pooled vehicle and they acquire finance and own properties in this way. The best private real estate funds offer high risk, high return investment in this pool.
What is A Private Real Estate Fund?
Private real estate fund is a pool of assets class containing private and public investments in the property market. There are four quadrants of the real estate capital markets, and they are private equity, private debt, public debt, and public equity; and private equity is one of them. Investing in private equity real estate consists of the acquisition, financing, or direct ownership of the property or a portfolio of properties. There are best real estate funds that manage big portfolios of private real estate funds where people invest their money in.
A Closer Look
If you want to invest in a private equity real estate, you have to have a long-term outlook and a big capital commitment, usually $250,000 at the start and later. The flexibility and liquidity offered to the investors are quite little because the capital commitment window usually requires many years. Investing in private real estate funds doesn’t require you to invest that much initially, though. The look-up periods sometimes can last for as many as a dozen or even more years and the distributions can be really slow since they are usually paid in cash flow rather than straight-up liquidation. It’s also important to know that the investors do not have the right to demand a liquidation.
Risk And Return
Although the investment lacks flexibility and liquidity, it provides high returns. Getting an annual return of 6-8% is quite common. But with high return comes high risk. Investors should be aware of the high risk and they can even lose their entire investment if a particular fund doesn’t perform well enough. Funds that are created for individual investors require the investment to be funded at the time of the signing but funds created for the institutional investors don’t require a capital commitment.
Types of Private Real Estate Funds
There are mainly five types of private real estate funds: office, industry, retail, multifamily, and shopping centers. There are also some niche types such as senior housing, student housing, hotels, medical offices, self-storage, single-family housing, manufacturing space, underdeveloped land, etc. High net worth investors, private accredited investors, and institutions usually invest in private real estate funds.
These types of funds can be pooled and be structured as LLC, S-corps, C-corps, collective investment trusts, etc. Since it’s a high-risk market, investors are very wary of any kind of change in the market and usually rely on seasoned investors or the best private real estate funds.