What Is Private Equity Real Estate Investing?

Real estate is a broad and complex investment category, with a multitude of options and offerings. One of those options is Private Equity.

What is private equity real estate investing?

Private equity real estate is an asset class composed of pooled private investments in commercial real estate property. Investing in this asset class involves the acquisition, financing, and ownership/operation of a property or properties via a pooled vehicle where a group of investors add money to the pool to buy shares in the real estate investment.

With private equity investing you own the real estate directly, unlike an investment in a REIT where you get exposure to real estate indirectly by buying shares in a publicly or privately held company that owns and manages portfolios of commercial real estate property. With a REIT you are, in essence, investing in the operating profitability of the landlord and not directly in the underlying assets themselves.

Direct real estate investing involves buying a stake in a specific property. For private equity real estate investments this means acquiring an ownership interest in an entity that directly owns an asset such as an apartment community or a medical office building. With direct real estate investing you are using private equity to buy the asset, or a share of the asset and you generate your return from the performance of the real estate you hold.

What are the benefits of investing in private equity real estate?

Pension funds, endowments, family offices, and ultra-high net worth individuals have long understood the merits of holding commercial real estate in their investment portfolios to bolster returns, balance market uncertainty, and generate tax advantages. Most consider real estate as the third leg of their investment stool (alongside stocks and bonds). They gain exposure to commercial real estate principally by making direct private equity investments through limited partnerships with companies or funds.

Historically private equity real estate investing was only available to ultra-high net worth individuals, but increasingly, real estate companies are giving accredited investors access to make direct investments in commercial real estate assets through partnerships they sponsor.

What are the differences between direct and indirect private equity real estate investing?

When an accredited investor wants to allocate funds to CRE they can choose to make a passive equity investment into commercial real estate through a fund or into an individual real estate asset.

A fund builds a diversified portfolio by investing in multiple properties. With a single investment you gain access to a professionally managed portfolio of commercial real estate assets.  Single-sponsor Funds are led by one real estate firm and focus on the firm’s specialty which can include a particular region or a specific asset class like office or industrial properties. You end up with diversified holdings as they fill the fund with real estate assets over time. 

You can also choose to make passive equity investments directly into individual assets. You are investing directly into the equity of a project of your choosing, not a fund that picks the assets for you. As a passive investor your leverage the power of the syndication and join dozens of other individual investors to contribute to the equity stack in a real estate purchase.  Unlike a fund you maintain discretion and get to choose what properties you will invest in and how much you will invest in each asset.

How does Private Equity Real Estate Investing work?

Historically private equity real estate investing was only available to ultra-high net worth individuals, but real estate companies are now giving accredited investors access to make direct investments in commercial real estate assets through sponsored partnerships. When an accredited investor wants to allocate funds to commercial real estate, they can choose to make a passive equity investment through a fund or into an individual real estate asset.

What’s the Difference Between Making Individual Investments and Investing Through a Fund?

A fund builds a diversified portfolio by investing in multiple properties. With a single investment you gain access to a professionally managed portfolio of commercial real estate assets.  Single-sponsor Funds are led by one real estate firm and focus on the firm’s specialty which can include a particular region or a specific asset class like office or industrial properties.  You end up with diversified holdings as they fill the fund with real estate assets over time.

You can also choose to make passive equity investments directly into individual assets. You are investing directly into the equity of a project of your choosing, not a fund that picks the assets for you. As a passive investor you leverage the power of the syndication and join dozens of other individual investors to contribute to the equity stack in a real estate purchase.  Unlike a fund you maintain discretion and get to choose what properties you will invest in and how much you will invest in each asset.

How does private equity real estate investing work?

Private equity real estate investing was once the bastion of ultra-high net worth investors. Today accredited investors can partner with sponsors to make equity investments in commercial real estate. Sponsors can pool investor capital in a fund or an individual investment entity to purchase the real estate and investor returns come from the performance of the real estate (operating profit and appreciation). 

Coast Equity Partners (CEP) sponsors private equity investments in individual multifamily real estate assets. We partner with investors to acquire and operate 100+ unit apartment communities in suburban locations around the major MSA’s in the Pacific Northwest. CEP multifamily investments generate strong overall returns through a healthy balance of passive income from operations and asset appreciation over time.

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