Real Estate Fund Strategy
Like all types of investment funds, real estate funds tend to be more specialized. Specializations can be by strategy, by class, or both. Class-specific strategies may include a combination of retail, office, medical, warehousing, hospitality, industrial, and agricultural facilities, among others. The various strategies used by real estate funds can be broadly divided into the following categories:
1. Real estate fund through structured finance
These funds aim to use great leverage to buy stable real estate investments and are often referred to as leveraged buyout funds. These inherently cyclical funds rely on low-cost access to leverage.
2. Distressed Asset Fund
By identifying assets that are suffering from insolvency or cash flow problems, distressed asset funds seek to invest in assets that otherwise may not be able to receive funding.
3. Real Estate Development Fund
Development funds are used to purchase and demolish existing properties for redevelopment. These funds require significant involvement in working with local authorities at various stages of construction but can be a lucrative option for investors.
4. Joint Venture Real Estate Fund
These funds use a co-investment strategy with other real estate funds to form syndicated investments. A joint venture fund can often require the investment manager to comply with SEC registration requirements as the joint investment may be considered collateral.
5. Opportunity Fund or Special Opportunity Fund
As the name suggests, opportunistic funds focus on situations where an asset can be sold at a discount, such as excess or damaged property, foreclosure, or unfinished construction projects.
6. Multi-Strategy Fund
These funds are an exception to the trend toward specialization as they are not confined to a single strategy or objective. Multi-strategy funds are ideal for investors who tend to have a lower risk tolerance or need to conserve capital, as they have the flexibility to deploy multiple strategies within a single fund.
Sponsor Reward
When setting up a real estate fund, sponsors should carefully consider compensation to ensure that it aligns with the interests and goals of investors.
-
Promoted Interest
(also known as Carry Interest) typically consists of a 2% commission based on the investor's capital raised and a 20% share of the fund's profits. To meet the interests of the investors, the sponsor often only participates in profits that exceed the desired returns of the limited partners.
-
Fees:
Additional costs can be earned with the aid of sponsors for a whole lot of one-of-a-kind offerings furnished to the fund, which include the following:
Acquisition costs for obtaining homes on behalf of the fund (1 to a few percentages of the purchase price)
Asset control costs for dealing with the fund on behalf of investors are 1–5% of the yearly value. Fees for property management, construction, leasing, and development are provided with the assistance of the sponsor rather than hiring outside firms (usually based entirely on market norms). Finance and assurance costs for securing financing and imparting an assurance on behalf of the fund (0.5–10% of secured funds)
What if I told you that even in today's market, there are innovative methods that can be used to break through the walls and move towards a future of financial freedom?