WHAT IS PRIVATE EQUITY IN RELATION TO REAL ESTATE INVESTING?
With core real estate pricing above pre-covid, private equity investors are increasingly seeking “develop-to-core” strategies, pursuing development projects to create core real estate rather than competing to purchase it.
Core real estate funds increasingly include a “develop-to-core” allocation, dedicating 0 to 10 percent of funds as a means to enhance yield and take advantage of cyclical strength in property fundamentals.
Hence, for many investors it is a compelling option to invest in private equity develop-to-core projects.
(Develop to Core refers to buying land and building assets on it, to own and manage for the long-term or to sell – rather than buying existing buildings, in order to pursue higher yields)
Private Equity/Alternative Investments
The Trillion Dollar Industry
What Is Private Equity?
Private Equity is capital – specifically, shares representing ownership of or an interest in an entity.
Private equity is an alternative investment class and consists of capital that is not listed on a public exchange. Private equity is composed of funds and investors that directly invest in private companies. Private equity investment comes primarily from institutional investors and accredited investors, who can dedicate substantial sums of money for extended time periods.
Private equity firms raise money from institutional investors and accredited investors to invest in different types of assets.
The most popular types of private equity funding are listed below.
Distressed funding:
Also known as vulture financing, money in this type of funding is invested in troubled companies with underperforming business units or assets. The intention is to turn them around by making necessary changes to their management or operations or make a sale of their assets for a profit.
Leveraged Buyouts:
This is the most popular form of private equity funding and involves buying out a company completely with the intention of improving its business and financial health and reselling it for a profit to an interested party or conducting an IPO.
Real Estate Private Equity:
Typical areas where funds are deployed are commercial real estate and real estate investment trusts (REIT). Real estate funds require higher minimum capital for investment as compared to other funding categories in private equity. Investor funds are also locked away for several years at a time in this type of funding.
According to research firm Prequin, real estate funds in private equity are expected to clock in a 50 percent growth by 2023 to reach a market size of $1.2 trillion.
Fund of funds: As the name denotes, this type of funding primarily focuses on investing in other funds, primarily mutual funds and hedge funds. They offer a backdoor entry to investor who cannot afford minimum capital requirements in such funds. But critics of such funds point to their higher management fees (because they are rolled up from multiple funds) and the fact that unfettered diversification may not always result in an optimal strategy to multiply returns.
Venture Capital:
Venture capital funding is a form of private equity, in which investors, also known as angels, provide capital to entrepreneurs.
Private Equity Management As it Relates to Real Estate
What Is Private Equity?
Private Equity is capital – specifically, shares representing ownership of or an interest in an entity – that is not publicly listed or traded. It is composed of funds and investors that directly invest in real estate.
Private equity generally involves the formation of an investment syndicate or fund in which the capital of multiple investors is combined. The private equity firm then proceeds to make investments in individual assets, build properties, or make substantial refurbishments before on-selling.
Returns and risks vary, but it is generally accepted that an investment of $1 million would be aiming to return to the investor $1.5 TO $167 million (pre- tax) after the designated time frame.
Generally, most private equity placements from investors require a minimum investment of AU$300 -500, 000 with timelines of 3 years or longer.
DOWNLOAD THE UNDERSTANDING PRIVATE EQUITY AS IT RELATES TO REAL ESTATE REPORT
TOPICS INCLUDE:
What Is Private Equity?
Private Equity Fees
Private Equity Regulation
What is Private Equity as it Relates to Real Estate?
How Does Private Equity Work?
How Do Private Equity Firms Make Money?
What is an Alternative Investment?
Alternative Investments for Diversification and Hedging
Regulation of Alternative Investments
What is an Accredited Investor?
What is a High Net Worth Individual?
What is a 'Private Placement'?
What is a Distribution Waterfall?
What is Carried Interest?
How Carried Interest Works
What is a Private Investment Fund?
What is Committed Capital?
What is a 'Private Placement'?
