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.
Lock-up periods for private equity real estate can sometimes last for more than a dozen or more years. Also, distributions can be slow because they are often paid from cash flow rather than outright liquidation—investors have no right to demand a liquidation. Moreover, fund managers typically charge a 2-and-20 fee structure, costing investors 2% of invested assets per year plus 20% of profits.
The following category of investor invests in private equity real estate
- Private accredited investors
- High-net-worth individuals (HWNIs)
- Funds created for individual investors generally require that the investment be funded at the time of the signing of the investment agreement, whereas funds created for institutional investors require a capital commitment. That capital is then drawn down as suitable investments are made. If no investments are made during the investment period specified by the agreement, nothing can be drawn from the commitment.
Private Equity Real Estate Returns
Despite the lack of flexibility and liquidity, this type of investment can provide high potential levels of income with strong price appreciation. Annual returns in the 6% to 8% range for core strategies and 8% to 10% for core-plus strategies are not uncommon.
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 centers (neighborhood, community, and power centers); and multifamily apartments (garden and high-rise) are the most common private equity real estate investments.
There are also 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.