Private equity real estate is a term used in investment finance to refer to a specific subset of the real estate investment asset class. It is an alternative asset class composed of professionally managed pooled private and public investments in the real estate markets. Private equity real estate investing involves the acquisition, financing, and ownership (either direct or indirect) of property or properties via an investment fund. Private equity real estate should not be confused with an equity real estate investment trust, or equity REIT, which are publicly-traded shares representing real estate investments whose revenues are mainly generated through rental incomes on their real estate holdings.
Private equity real estate emerged as an independent asset class in the beginning of the 21st century and has experienced huge growth in recent years. Private equity real estate funds generally follow core, core-plus, value-added, or opportunistic strategies when making investments. Private equity real estate is almost exclusively concentrated in the commercial sector, such as multifamily apartment buildings, office buildings, retail, hospitality, industrial, self-storage, land development, and the like.
Private equity real estate firms raise capital from outside investors, called Limited Partners (LPs), and then use this capital to acquire and develop properties, operate and improve them, and then sell them to realize a return on their investment. The outside investors or Limited Partners might include pension funds, endowments, insurance firms, family offices, funds of funds, and high-net-worth individuals. Private equity real estate investing requires a substantial amount of capital and may only be available to high-net-worth or accredited investors. Private equity real estate investing is often riskier and costlier than other forms of real estate investment funds, but returns of 8% to 10% are not uncommon.
