Real Estate Private Equity Investment Strategy
Been following the real estate industry for a while. Which REPE funds do both corporate and asset-level investments? Also, is there any fund that invests in both equity and debt? Thanks!
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Generally equity and debt strategies are separated and I can’t think of any funds that are raised across both. There can sometimes be overlap if a debt fund wants to buy a bond that they want the equity team to underwrite in case they have to own it.
Large companies will do both but under different ultimate funds. The equity sources for debt vs equity or corporate vs assets are different so rarely would you have a fund of any meaningful size raised to do both.
There are obviously "exceptions that prove the rule" one example would be pref equity/mezz debt people. Often these guys are playing within the same risk spectrum (and have similar equity sources) and often do both although most have either a pref equity or mezz bent as the pref equity guy usually has development/operational experience.
Do MFs like TPG RE and BX RE invest in c-corp? Thought BX RE just bought a stake in Great Wolf Resorts.
Yes, KKR has an ownership stake in their operating partner, Drawbridge Realty. This may be wrong, but I believe BX has the same type of structure in their industrial operating platform, Link Industrial Properties.
It's become more common at the "Mega-Fund" level for the LP to have an ownership interest in the operating partner. Other examples include when BX bought EOP or Hilton.
The whole key to REPE 'strategy' as it is considered, is to be be nimble and somewhat unconstrained. This is a function of a firm's ability to raise capital. BX more or less gets to do what it wants and will jump from office bldgs to SFHs to industrial or whatever as it did last 15 years. So, I think your question implies a premise that doesn't really exist.
That said, some firms have teams and expertise that focus on certain asset types and/or transaction types, so they tend to be bounded by their expertise. That is only a short term constraint.
REPE has been in the 'lead' for about 15 years in terms of cost of capital, in part, due to being able to be flexible. Before that it was the REITs, the dominant players and strategies can and do change with time in RE.
Goldman 1st/2nd year analysts work on both debt and equity investments. Additionally, since the firm also invests off of its balance sheet in deals (separate from their commingled funds) they do both corporate and entity level investments. For example, look at the iQ student housing deal was a perfect example of both corporate and entity level investments.
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