Understanding the Private Equity Real Estate Industry
The private equity real estate (PERE) industry attracts a lot of curiosity and interest. Many investment bankers and established real estates look to the field as a way to monumentally advance their careers. While the field holds a lot of potential for high returns and success, breaking into PERE can be a challenge— especially if you don’t have a large amount of capital on hand.
Due to the difficult barrier to entry, one of the best strategies for building a career in PERE is to consult with an established professional in the field, such as Steven Taylor. The PERE industry is fast-paced and competitive; therefore, consulting with professionals in the field is a great way to gain valuable insight.
The Appeal and Workings of Private Real Estate Equity
In recent years, PERE funds have attracted large amounts of capital from a wide range of sources: pension funds, wealthy individuals, endowments, etc. With approximately $720 billion of investment and a steady increase in asset value and returns, the PERE industry can be extremely lucrative.
One of the key components that has increased investment and profits in PERE is property valuations. Over the past decade, the value of properties has steadily increased, which has led to an increase in the value of property portfolios held by PERE firms.
PERE firms design portfolios using a variety of strategies, including:
- Attracting and obtaining capital
- Sourcing and analyzing investment opportunities
- Defining profitable exit strategies
Private Equity Real Estate: Barriers for Entry
Breaking into the PERE industry is not easily accessible. Most private equity firms require investors who can contribute millions of dollars in capital. While the majority of firms require in the tens of millions of capital for portfolio entry, some have dropped their minimums to 250,000. Most people do not have the capital required—even at the smaller minimums— to invest in PERE. You can think of the industry as a poker game where the requirement to play is so high that only individuals with a lot of money can buy in to expand their wealth.
If you have the capital to invest in PERE funds, your money will be taken in chunks throughout the terms of your investment. The manager of a PERE firm will ask for your capital as they identify lucrative investment opportunities. At the end of an investment term, the PERE firm sells its funds in the market to return money to investors. The best way to understand the profit structure of a PERE investment is to consult a PERE firm, such as Taylor Equities.
Private Equity Profits and the J-Curve
Unlike other investments, such as direct buying, PERE investments often have negative returns for the first few years. The profits of PERE investments typically follow a J-Curve: initial negative returns are gradually replaced by high profits in the later years of an investment term.
PERE is a sought after industry—many professionals see the field as an opportunity to exponentially advance their careers and increase their returns. If you are considering a career in PERE, you should consult with a PERE firm to gain insight into the industry.
