Investors who have bought and sold buildings know that real estate can build substantial wealth. However, buildings are expensive and mistakes can be costly. The bigger the property, the more resources are required for operations including maintenance, upgrades, leasing, etc.. And, a large single investment raises the stakes should anything go wrong whether it’s unexpected repairs, low occupancy rates or meeting obscure legal requirements.
Many investors are turning to private equity funds for the following reasons:
Minimize risk exposure
The best feature of a well-managed private equity fund is diversification. A high net worth investor may have the resources to buy a few buildings. However, by investing the same money in private equity funds, shareholders will have stakes in many more commercial properties that can range from apartment buildings to senior living facilities. Real estate funds do not stake everything on one investment. Instead, it owns properties in many cities at once, which enables taking advantage of thriving market conditions limiting the risk of a downturn in any single city. A well-run fund operates each of its properties as a separate business. If one property underperforms, it doesn’t negatively impact profits across the Fund. Deal by deal investments do not offer this same benefit. If a deal fails, investors can suffer substantial losses.
Private real estate has low correlation to other asset classes such as stocks, bonds, and publically traded REITs. Real Estate fund is potentially an effective way to add a valuable layer of diversification to an investment portfolio. Private Equity funds have high-expected returns and low volatility. If private equity real estate isn’t part of your portfolio, it needs to be.
Access to real estate investments and management expertise that was previously only available to institutions
Funds have access to better properties. A well-managed fund has experienced principles and local experts in every market where they invest. The experts are familiar with properties for sale and, often, real estate that might become available. This insight provides insight on purchase prices and potential returns.. This knowledge is developed from cultivate trusted relationships with owners, local governments and financial institutions. Quite often opportunities for buying commercial real estate “off market” or directly from a seller come to them first through these relationships.. These are best opportunities that rarely hit the open market.
Fund managers do the hard work for you. A good fund manager will not only be able to screen investment properties, solve potentially complex problems, but will also be able to mitigate potential risks..
Buying commercial real estate is a complex task. Managing a property is demanding and legally challenging. Keeping grounds attractive, tenants happy and financial management are day-to-day tasks requiring specific expertice and constant attention. A private equity fund performs all these tasks and more. If a problem arises, the investors are shielded from liability and day-to-day involvement in operations.
A stream of income with potential for capital appreciation
Real estate funds invest in stable properties with a high-quality tenant in place that provides rental income each month. To the extent properties increase in value over time, a real estate investment can provide capital appreciation in addition to the income stream. Real estate investments are typically leveraged, which can provide an additional boost to total returns during favorable market environments.
Fund Manager’s alignment of interests
Co-investment is the most effective way to align the interests of a fund manager and investors. We started EOG to invest our own capital. Consequently, maximizing investment performance remains our primary goal. EOG will always commit a minimum or 10%, while industry standard is 1% to 5%.