Introduction

Private real estate is a popular asset class used by institutional investors such as pensions, endowments and family offices, as well as individual investors. Investors seeking to access alternative sources of income and growth, as well as to diversify traditional portfolio exposures, often will explore opportunities in real estate. It is generally defined as tangible property consisting of land, buildings, and other improvements. The real estate market is vast in size with many components for investors to consider prior to considering an investment. It potentially provides an opportunity to complement common investment exposures to traditional and other alternative asset classes.

What is Private Real Estate?

Private real estate encompasses investment opportunities that are not available on an exchange, or otherwise generally available to the public. Many properties, land and assets are owned by sophisticated investors, including commingled investment funds, large institutional investors, and high/ultra-high-net-worth investors, among others. Real estate is commonly described by investment profile, sector type, and market strength. Each category has unique risk and return profiles and liquidity constraints to consider when reviewing an opportunity or when building a diversified real estate portfolio.

Real estate is often considered a diversifying complement to a traditional asset portfolio given the general risk and return dynamics of the asset class that has historically exhibited lower correlations with traditional asset class returns.

Long-Term Investment Horizon: Investments in private real estate are typically made for long periods of time. This is reflective not only of the time it takes to source properties, but also the time necessary for a GP to unlock value within each portfolio property as part of their investment strategy.
Active Management: Private real estate in general is an active strategy. Managers may acquire core property and passively manage them, but this still requires property management teams for leasing, maintenance, and other needs. Similarly, managers repositioning or developing assets must actively source properties and oversee the management and construction, lease them, and find buyers to exit.
Proprietary Deal Sourcing: Sourcing real estate transactions can be very competitive in top markets like Austin, Texas or California. Many larger properties are transacted through brokers, which typically requires personal networks on the investment team. Many other deals are sourced off-market where there is no competitive auction for the property. Sourcing attractive deals at good valuations directly impacts value creation.
Operational and Structural Improvements: Managers seek to create value within properties by either improving the operations of the property, such as lowering maintenance and property cost, or by improving occupancy rates. Developers seek to generate value through construction or structural improvements.

Core

Core assets typically consist of high quality assets with high levels of occupancy.
Often, these properties are located in some of the strongest locations.

Core Plus

Core plus real estate assets are typically still high quality assets in strong markets, but likely require minor upgrades to increase occupancy or grow cash flows.

Value Add

These investments typically require repositioning or redevelopment, but have existing tenants and current rental income. The majority of return typically comes from capital appreciation along with a supplemental current income component.

Opportunistic

Typically, special situation investments or distressed properties that may include: halted construction, bankruptcy, ground-up development, or heavy redevelopment. The majority of the return is expected from capital appreciation.

Discover the Value Creation!

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Disclaimer

THIS PAGE IS FOR INSTITUTIONAL INVESTORS USE ONLY. THIS INFORMATION IS FOR SOPHISTICATED INVESTORS ONLY WHO ARE ACCREDITED INVESTORS AND QUALIFIED PURCHASERS. This material is provided for educational purposes only and is not intended to be relied upon as investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The findings, ratings and/or opinions expressed are subject to change without notice. They are not intended to convey any guarantees as to the future performance of the investment products, asset classes or capital markets discussed. Private capital funds are speculative and involve a high degree of risk. Private capital fund managers have total authority over the private capital funds. Funds of private capital funds are not liquid and require investors to commit to funding capital calls over a period of several years; any default on a capital call may result in substantial penalties and/or legal action. An investor could lose all or a substantial amount of the investment. There may be restrictions on transferring interests in private capital funds. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

Private Real Estate