How to Set Up a Private Equity Real Estate Fund

Posted on May 3, 2018

By Jan A. deRoos, PhD and Shaun Bond, PhD

How does one go about creating a partnership to raise equity for ongoing real estate investment?

THIS ARTICLE INTRODUCES the contemporary structure of private equity real estate funds and outlines the steps necessary to create and properly manage a fund. It discusses the motivations for creating a fund and the factors that should be considered when setting one up. A future article will examine how securities laws impact the offering and management of a fund, as well as typical offering terms.

In its simplest form, a real estate private equity fund is a partnership established to raise equity for ongoing real estate investment. A general partner (GP), henceforth referred to as the sponsor, creates the fund. The sponsor asks investors, known as limited partners (LPs) to invest equity in the partnership. Those funds, along with money borrowed from banks and other lenders, will be invested in real estate development or acquisition opportunities.

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