What is Private Equity Commercial Real Estate?
Private equity commercial real estate is an asset class that allows high-net-worth, accredited investors to place capital with a professional team experienced in purchasing and managing commercial real estate assets. Private equity CRE firms tend to focus on particular real estate asset classes, such as retail. In the past, commercial real estate investing was only available for institutions. But now private equity opportunities are available for individual private investors looking for passive income tied to commercial real estate.
There are many reasons why private equity investing is gaining in popularity among accredited investors, and here are some of the benefits:
Diversification
Private equity real estate investments are considered alternative investments because the returns on these assets tend to be uncorrelated to traditional assets like stocks and bonds. This means allocating capital to real estate funds can help to diversify a portfolio and reduce overall risk. In addition, there are a number of opportunities for diversification within private equity commercial real estate with different property types, locations, and asset classes.
Income Potential
Private equity real estate investments can potentially generate income through rent payments received from tenants. This cash flow is distributed to the investors in the fund and represents passive income to the limited partners. Over time, general partners work to increase the amount of cash flow each property generates, usually through rent hikes as market rents and demand for leased space rise.
Professional Management
Private equity real estate companies are managed day-to-day by experienced professionals who have track records sourcing, underwriting, and managing commercial properties. Management teams are typically responsible for key decisions that influence the returns investors ultimately receive. Important management functions are often related to managing renovations, leasing, and maintenance. Investors do not have to worry about having the time or expertise to manage their real estate investments on their own.
Property Value Appreciation
Real estate investments have the potential to appreciate in value over time as the properties are improved, leased up at higher rates, and benefit from price increases in the local real estate market. Appreciation provides investors with an additional way to earn a decent rate of return on their investment.
It’s always a good idea for real estate investors to consult with a financial professional, qualified real estate attorney and/or CPA before deciding whether to allocate capital to a private equity vehicle.
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