A Primer on Real Estate Private Equity Fund Formation

Past experience may not have saved real estate professionals from the impact of the recent economic downturn, but past experience certainly has real estate professionals looking for the inevitable rebound and recovery of the real estate market. Currently, any real estate professional that is not overwhelmed with workouts is spending his or her time trying to position their company or investment group to be ready to buy quality assets when the market begins to turn. Real estate professionals justifiably believe that there are going to be opportunities to buy discounted debt and/or discounted real estate and want to be in cash ready positions to do so when the market provides those opportunities. Only a fortunate few have kept their powder dry and have the cash to react quickly in this market. For most, in order to be in a position to take advantage of a market rebound, they are going to need to raise new equity capital. To raise that capital, many real estate professionals are going to sponsor “real estate funds.” While real estate funds are nothing new and have been a driving force in the real estate market since the 1990’s, this downturn appears to be motivating many real estate professionals who traditionally did not need to raise capital, or did so on a one-off basis, to form and sponsor real estate funds. This article is directed to those real estate professionals who are contemplating forming and sponsoring a real estate fund, but want to more fully understand what that entails. This article provides a primer on real estate private equity fund formation and operations to enable a real estate professional to determine whether or not he or she wants to become a fund manager by sponsoring a real estate fund.

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