Equity Investments by Private RE Funds

A good match between a developer and a fund

The financing of some RE development and construction projects require at least two equity parties: the developer (the sponsor) and the equity investor. Together, they provide between 20% to 35% equity so they can access construction financing.

The equity investment allows the developer to focus on his/her development activities rather than the investment of capital. It also allows the developer to preserve some capital to support guaranties and construction contingencies. For the equity investor, investing in a development project allows the opportunity to generate leveraged returns in an optimistic environment. For the construction lenders, an additional level of comfort is created with a well-capitalized borrower backed by an equity investor.

Investment Objectives of the Private RE Funds

Private RE Funds are available in the marketplace to provide equity to construction and development projects. Different types of PLF have different levels of risk tolerance, different levels of return requirement, different time horizons, and different tax considerations in structuring the investments.

Private RE Funds are prepared to take the highest level of equity risk in return of high returns. Current target returns for Private RE Funds are based on the time horizons. Mid-20s can be expected for up to 18 months and mid-30’s for those based up to 24 months.

The challenge for a developer seeking a Private RE Fund is to choose a compatible equity partner from among the available alternatives. A compatible partner is one that has hurdles that can be realistically achieved and time horizons that can match those of the developer.

At Capital Insiders we offer investors the opportunity to invest in both; a Private Lending Fund offering capital preservation, current income, risk-adjusted returns and an Opportunity Fund offering both, a preferred return and high-yield returns.

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