Difference between REPE, GP, LP, debt fund?

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I see these various terms thrown around a lot on this site, but what specifically is the difference between them? are developers considered a "type" of REPE firms? are REPE firms LPs? are debt funds a type of REPE? what about the investment arms of banks or large asset managers, what are these considered?

Comments (86)

 
Jul 28, 2020 - 4:05pm

This is a touchy subject - but here is how I define them:

REPE - any private equity fund that invests in real estate assets. This could be taking the GP, LP, or senior lending (debt fund) position.

GP - you can call them the "operator", "sponsor", etc....but to me, it's the group or principals that actually sign the loan guarantee.

LP - this can have two meanings...on the property level, it's the LP partner that partners with the GP on the deal, but is still subordinate to the senior lender....OR, on a higher level, it's the investors/funds that invest into the REPE fund decribed above.

Debt Fund - a fund that invests takes debt positions at the property level.

Edit: LOL this really is a touchy subject

 
Jul 29, 2020 - 6:10pm

Okay, so I'm at a debt fund that has two separate funds specifically for mezz, pref and structured equity.

We also do CMBS and Freddie SBL. I have been under the assumption that we are just a debt fund/direct lender and not REPE, except for the two funds we have - is that a correct way to look at it? I suppose I don't even know what REPE means anymore based on the reactions of this post.

 
Most Helpful
Jul 28, 2020 - 7:25pm

So, in asking this question you are acknowledging the truth, these terms often have loose definitions and are way overused (especially on WSO).

The "REPE" is probably the worst offender. What people really mean is so called 'private equity' firms that do real estate, like Blackstone, Starwood, KKR, etc. These firms raise money (from partners, who will be LPs for legal purposes) and they act as the GP (sponsor, earn promotes etc.). When on of these firms invest, they could own 'directly' or they could invest with a local operator. When they do this they could be considered LPs, or just joint venture (JV) partners with the local operator/developer (who will be the GP). Get all that?

LP and GP and legal structures, not business modes. So an "REPE" firm can be a GP raising money from "LP" investors to go invest as an "LP" into another "GPs" deal. Who signs on debt and all that stuff is just up for negotiation, the LP investors into an REPE fund can assuredly never do that (so far as I know anyway).

When a PE firm like Blackstone goes and buys property, whether with local partner/developer or not, they are really not acting any differently than an "real estate investment manager" like PGIM, Nuveen, Clarion, CBRE Investors, etc. They raise money from the same groups as LPs into PE funds (except they may do the large open-end perpetual life type vs. the PE styled term limited closed end type, or they may actually do both...), and act as LPs as well just like PE shops.

It gets really fun when those "LPs" (SWFs, insurance funds, pension plans, UHNW types, endowments, etc.) also do direct investing and invest as LPs directly with local sponsors/developers (like CalSTERs does).

Even more fun, some of those big LPs become so excited with RE they open their own investment platforms and not only manage their own money, but also third-party money! like PGIM, USAA, TIAA (I guess I said Nuveen already...) does. So the LPs raise LP money to invest as LPs in other deals while acting as GPs. Got all that??

Think of it this way.... it's all principal investing. Any 'principal' has acquisitions, asset management, capital markets, research/strategy, and investor relations functions. Those are the core 'front of house' stuff in addition to the functional stuff like legal, accounting, HR, etc.

People on here talk about 'targeting REPE' and maybe mean 'principal investing'. I hope this helped, and yes, I get why it is confusing!

 
Jul 29, 2020 - 2:34pm

Excellent explanation. One thing I would add is that all of this is driven by fees, a desire not to pay them, and to earn them if possible.

In the classic fund scenario in which a fund partners with an operator to form a joint venture an LP in the fund is paying a management fee and a promote to the GP of the fund, and the fund is paying a management fee and a promote to the GP of the venture.

Eventually the LP's realized that if they are big enough they can largely avoid the fund structure and invest directly with operators, avoiding a layer of fees. (Canadian pensions, large soverigns etc are doing this currently).

Finally, the LPs try and capture the fees themselves by 1) raising capital to directly invest in these operators and 2) acquiring (typically minority) stakes in these operators. (Insurance comopanies are currently doing this, Nuveen, AXA, Allianz, etc.)

 
Jul 30, 2020 - 10:23am

Very true, in fact, before the term "debt fund" became a thing, there were several hedge funds that started making direct real estate loans (often short term bridge loans), this was a thing long before the whole 'debt fund' trend really took hold. It just became more main stream in last decade (in prior decade, they really only did loans that more traditional sources wouldn't do, today they could compete in some circumstances).

 
Jul 30, 2020 - 5:31pm

I mean, you are many describing many real estate companies. I'm pretty sure groups like Silverstein, RXR, and Related. They have funds they raise, they also JV at the GP level and will use LP capital as you describe. So, let's call them real estate companies!

I think what people are missing, is that there is commonly accepted view of what a Private Equity firm is, some of those decided to get very big in real estate. Is Blackstone a PE company that does a lot of real estate? They are very integrated in lots of areas of finance. They are sponsors to a non-traded REIT (BREIT), they have mortgage arms, all sorts of operations.

But they are now 'public' (ticker BX), so does that mean they are now 'public'? These names are what you make them. Private Equity typically refers to closed-end focused strategy funds that offer zero to very limited liquidity and seek to provide above average returns utilizing leverage most of the time.

This was sort of my original point, there is NO firm definition, yet there is a real world consensus of what Blackstone/KKR/Starwood is. Is it unreasonable to call any and all real estate companies that are not REITs or publicly registered "REPE", I guess not, but you will be alone in using the terminology in any practical sense.

 
  • Analyst 1 in IB-M&A
Jul 31, 2020 - 11:45am

Interesting that in real estate private debt/credit is considered private equity, whereas on the corporate side they're pretty distinct. When I was in undergrad and people recruited for REPE, it typically referred to the equity side and also acquisitions/asset management roles at those firms. RE professionals view it differently I'm seeing

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  • Prospect in RE - Other
Jul 31, 2020 - 11:39pm

People on WSO seem to care too much if something in RE can be considered PE or IB. I’m assuming it makes people feel more proud when they can throw around these terms with family, friends, or girls but; Who actually gives a shit?

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  • Investment Director in RE - Other
Aug 1, 2020 - 10:59am
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