Do open ended core real estate funds have promote?
Curious if this even exist for an open ended core fund when they sell an asset ? Hoping someone can help.
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Interested as well
redever do you happen to know?
Yes. There are generally promote crystallization events somewhere between three and five years following the investment. Terms vary as you might imagine. I've seen:
Asset management fees can swing a lot based on the LPs check size. I've seen a wide range between 0.65% and 1.1% of NAV. Sprinkle in some cash management fees, advisory fees, and a couple billion in commitments and you've got yourself a nice lil' Odyssey fund.
Are these different than normal close ended funds ?
Asset management fees are lower, and the promote is calculated based on an appraisal as 'redever alluded to. The promoted interest is lower, but the hurdle is about the same I'd say. Our closed in value-add/core-plus fund is 20% over an 8% pref. The four examples I gave were ventures formed between 2015 and 2018 and the market is moving around on all of this (all multifamily). Last time I talked to our placement agent market for a core fund was ~15% over a 6.5%-7% pref.
Ha, thanks for the shoutout. The answer is some do, some don't.
I found a really good (but very dense tbh) article from Bard Consulting on real estate private equity compensation (hope the link works)
https://static1.squarespace.com/static/5a00a5ad90bade3bd62dbaa1/t/5a57e…
Per the paper... incentive fees (aka promotes) are not a major part of core fund manager comp, but they are common. For the large open-end core funds, they quote a 2011 PREA study that said half of all open end core funds (presumably ODCE members) had no incentive fees... meaning half did.
They point out incentive fees are common, and the major source of income for the other private equity strategies of Value-Add and Opportunistic, as you would probably expect.
I should note that this paper seems a bit old, and fee compression has been an issue overall, so fewer may have today. There are also deals where managers get excess fee comp if the fund performs above a benchmark like the NCREIF ODCE. Personally, I would think of these incentive structures more like what you see in hedge funds and mutual funds than closed-end funds/deals; they take measurement quarterly/annually, and can charge at those moments (just deduct from distributions).
Core funds should still be charging acquisition fees, dispo fees, and of course, the annual asset mngt fee! The AM fee probably goes up each year with revaluation (core funds appraise their portfolios quarterly for NAV calc), all properties get full appraisal annually. So this can allow the AM fee to grow as properties appreciate.
Hope this wasn't too technical, the paper is really good if you want an overview of the real estate private investment mngt spectrum.
Hey good info. What have you seen for a typical fund investment from a GP? Lets say its a $20M fund, is it 5%-10% similar to a one off asset deal. What if the GP is not taking promote, do they still contribute to the fund?
Yeah that is the total truth today, everyone negotiates a deal. This is why Blackstone, Starwood, KKR and the like are finding their way into the non-trade REIT/BDC world, the fee compression is coming for value-add/opportunistic just like it did to core, need to keep innovating to keep fees up!
Here is more of a link to all sorts of research white papers if you want to geek out on this stuff https://www.bardconsulting.com/all-publications
My firm's open ended fund has a 10% over a 7% hurdle based on NAV (Book Value) with a high water mark provision. The asset management fee is ~1% of NAV
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