Real Estate Funds
Real estate is a separate category in the alternative investments arena. This category attracts many investors due to the solid asset that backs the investment and because many investors possess prior knowledge of the basic financing of real estate which makes them feel comfortable making these investments. There are many ways investors can tap the real estate market. Options include direct ownership of real estate or ownership through a partnership. There is an option to invest through the stock market in instruments such as: REIT, mutual funds, and ETFs. Private Real Estate funds are a way for sophisticated investors to tap into the real estate market. Ifunds brings the best of Private Real estate managers to Israel.
Why should you consider Private Real Estate funds versus investing in mutual funds, Reit or ETFs? The big advantage of Private Real Estate Funds is the flexibility that management has in making investment decisions. Traded instruments fall under the jurisdiction of many supervisory agencies and as such must comply and follow many regulations. Second, the decision-making process in the traded instruments is influenced by the need to support short term stock prices. Private Real Estate funds on the other hand can seize opportunities, be more flexible, utilize advanced financing and make quick decisions. These attributes of Private real Estate Funds are reflected eventually in the performance of the funds. The downside of Private Real Estate Funds versus traded instruments is the illiquidity of Private Equity funds.
Private Real Estate funds are structured similarly to Private Equity funds. These are usually closed-end funds that raise a pre-set amount of capital. The fund usually operates for 5-7 years and then it liquidates its assets. The fund performance is published every quarter but only at liquidation the final IRR is determined. Investors in this type of funds will “lock” their investment for the life cycle of the fund although some managers offer periodic distribution of revenues. Some real estate funds operate as perpetual funds and allow investors to liquidate their asset.
Private Real Estate funds strategies include:
- Core – Usually refers to lower risk assets such as high-quality assets in primary markets with premium location.
- Core Plus – A step in risk versus Core products. These funds may include assets that are in secondary markets or in slightly riskier areas in primary markets.
- Value – Add – These funds will invest in assets that the fund can add value to the return of the assets by increasing operational efficiency, re-leasing, and small-scale redevelopment.
- Opportunity – These are high risk high return funds involving the repositioning and /or redevelopment of poorly run or outdated buildings.
- Development funds – A development fund is used to acquire and demolish the existing property for re-development.
Private Real Estate Funds also trends towards greater levels of specialization by class. A class-specific strategy might include a mix of retail, office, medical, storage, hospitality, industrial and agricultural properties, among others.