| The following private equity real estate article is a compilation of excerpts from on line sources. To view the entire articles, please visit the web sites listed below; |
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| "Opportunistic Investing: Private Equity Real Estate Funds". www.ey.com |
| "I want my PERE" www.PrivateEquityOnline.com |
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| Private equity real estate funds originated in the late 1980s/early 1990s to capitalize on the opportunities resulting from the sudden unavailability of debt capital and the abundance of available product offered by motivated sellers, most notably the Resolution Trust Company. These opportunistic real estate funds, also known as "value-added" funds and "opportunity" funds, typically target higher yielding (15%- plus leveraged) private investments. In addition, they typically have an average life of from seven to 10 years, often with two one-year extensions. Generally, they provide for a 1% to 2% annual management fee, a 20% carried interest to the General Partner after achievement of a preferred return hurdle (typically 9% to 10%) and have a significant individual, pension fund, and endowment investor base. The General Partners (and their affiliates) typically commit 1% to 5% of the fund capital, but commitments of those General Partners (and their affiliates) associated with investment banks often range between 2% and 40%. |
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| These real estate opportunity funds have recently become the belles of the limited partner ball as return-starved investors look to increase the alpha in their portfolios. Unlike stable, trophy real estate assets - known as "core" investments - PERE funds typically shoot for returns well in excess of 15 percent, a yield that is increasingly drawing the attention of institutions. |
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| The California State Teachers' Retirement System (CalSTRS), for example, currently has 30 percent of its $5.5 billion (€4.3 billion) real estate portfolio invested in these types of funds, a dramatic increase from four and a half years ago when its commitments to the sector were hovering near zero. |
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| According to a recent report from Deloitte & Touche, the California pension fund giant isn't alone: institutional investors are expected to increase their real estate allocations from 5 percent to 10 percent to 15 percent over the next several years with private equity real estate funds one of the primary vehicles of choice. |
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| Other factors helping to fuel this rapidly growing sector include the success of most of the early vintage year funds, the continuing availability of equity coupled with a skyrocketing stock market, and expanding global opportunities. These factors have enhanced the growth of the sector, not only in terms of the huge amount of money raised, but also in terms of the number of funds now operating globally. |
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