Real Estate Private Equity Questions
What does investing in private equity real estate require?
- An investor with a long-term outlook and a significant upfront capital commitment—over $250,000 initially and follow-on investments over time. Little flexibility and liquidity are offered to investors since the capital commitment window typically requires several years. - Institutions (pension funds and nonprofit funds) and third parties, such as asset managers investing on behalf of institutions - Private accredited investors - High-net-worth individuals (HWNIs)
What are the types of Private Equity Real Estate Investments?
- Office buildings (high-rise, urban, suburban, and garden offices) - Industrial properties (warehouse, research and development, flexible offices, or industrial space); retail properties, shopping centres (neighbourhood, community, and power centres); and multifamily apartments (garden and high-rise) are the most common private equity real estate investments. More niche property investments: such as senior or student housing, hotels, self-storage, medical offices, single-family housing to own or rent, undeveloped land, manufacturing space, and more.
What is an equity real estate investment trust?
- Publicly-traded shares representing real estate investments whose revenues are mainly generated through rental incomes on their real estate holdings.
Why would private equity real estate funds become popular now?
Amid falling property prices (fastest since 2008) as a way to scoop up properties as values fell.
What is Private Equity Real Estate?
An alternative asset class composed of professionally managed pooled private and public investments in the real estate markets. Investing in private equity real estate involves the acquisition, financing, and ownership (either direct or indirect) of property or properties via an investment fund.
What metrics do you look at when underwriting a real estate transaction?
Cash on cash Equity multiple IRR Rent ratio
What do industrials yield?
High risk, high return
What do office buildings yield?
Low risk, low return
How to calculate building value given NOI and cap rate?
NOI / Cap rate = Purchase price
How is private equity real estate different from REITs?
Private equity real estate investing requires a substantial amount of capital and may only be available to high-net-worth or accredited investors.
Why would two office buildings that are identical be valued differently?
Tenant credit quality, Lease term length Strength of leasing Cap structure of the building
Understanding private equity real estate.
Using an active management strategy, private equity real estate takes a diversified approach to property ownership. General partners (GPs) invest in a variety of property types in different locations, which can range from new development and raw land holdings to complete redevelopment of existing properties, or cash flow injections into struggling properties. Private equity real estate investments are commonly pooled and can be structured as limited partnerships (LPs), limited liability companies (LLCs), S-corps, C-corps, collective investment trusts, private REITs, separate insurer accounts, or other legal structures.
What are the four main strategies in real estate private equity?
a) Core - investments are made in low-risk / low-return strategies with predictable cash flows. b) Core Plus: Moderate-risk / moderate-return investments in core properties that require some form of value added element. c) Value Added: A medium-to-high risk / medium-to-high-return-strategy which involves the purchasing of property to improve and sell at a gain. Value added strategies typically apply to properties that have operational or management issues, require physical improvements, or suffer from capital constraints. d) Opportunistic: A high-risk / high-return strategy, opportunistic investment in properties require massive amounts of enhancements. Examples include investments in development, raw land, and mortgage notes.
