Tyler Tysdal – What is Private Equity Real Estate?

Real estate is something that we are all pretty fascinated with here and most of the team have some form of investment or another in this sector. It is for this reason that we were mightily excited to have industry expert Tyler Tysdal speak with us about real estate and the real estate market recently, who opened our eyes to some incredible things. What took up the majority of our conversation however was real estate private equity groups, a relatively new form of private equity groups which are swallowing up huge amounts of real estate all over the world. If this is a new concept to you, let’s break it down.

What is it?

In its most basic terms a private equity group in regards to real estate is a group of investors, either strangers, a family or even a collection of businesses, who pool their money together in order to buy up real estate. During the mid-90s there was a property slump and this motivated many individuals to pool their cash together in order to use this vehicle to purchase large amounts of property at low prices.  

Who Invests? 

The majority of investors who use a private equity group with real estate are wealthy individuals or a collection of businesses but we have also seen pension funds and non-profit funds use this vehicle for their investments. Generally the investors will be unaware of their investment in a private equity group such as this as they will be conducted by asset managers who are working on behalf of institutions.  

What Properties?

The most common types of properties which are bought up by these groups are high rise structures such as offices and apartment blocks, shopping centers, retail properties, industrial properties and some will even specialize in properties which are ripe for development. There is no one-size-fits-all approach to which properties are bought up by a particular group but generally they will be larger scale properties as opposed to residential properties.  

What Kind of Returns? 

It should be noted that anyone who is investing in a private equity real estate group will need to be an investor who has a more long term outlook. Equally the investor will usually be someone who is happy to commit large amounts of capital to the group, many have mandatory minimums such as $250,000. The initial years of investment will rarely yield any kind of dividends and there is little liquidity offered in the first 5-10 years, this is known as the lock-up period. Once the lock-up period is over however, investors can count on large annual dividends which can reach 10%, even at their lowest these will deliver returns of 6% and it is incredibly rare that dividends fall below this benchmark.

If you are looking for along term strategy which has proven to offer large scale returns, this could be the best place for you to invest your cash.