Real estate private equity firms are the largest managers of real estate assets and investors in the world. Investing in private real estate has always been in the realm of institutional investors such as insurance companies, endowments and large pension funds.
Real Estate Private Equity Trends
The landscape of the real estate investment universe has been gradually shifting but it saw wholesale changes after the GFC where the real estate private equity firms become the industry’s dominant players.
Pre GFC, traditional real estate asset managers mostly focused on the core and core plus investment styles whilst the value add and opportunistic funds were run by entrepreneurial and boutique firms.
After the GFC, Blackstone being the most notable and successful real estate PE manager in institutionalizing the close-ended value add and opportunistic space and became the face of real estate private equity and force it is today. The downside of close-ended funds is the limited firepower within the first 3 or 4 years, known as the investment period. Any capital not invested during this period is returned to investors and requires the manager to continue to go back to investors to raise the next vintage in the fund series.
As the capital raise for its drawdown funds become ever larger and the investment universe or opportunity set decreases. Real estate PE firms have gradually migrated their real estate platform towards the core and core-plus core segment with an increasing focus on permanent capital. These permanent investment vehicles allow the investment manager to continuously investing the capital.
Largest Real Estate PE Firm List
It is interesting to note most of the largest real estate PE firms are a part of an established private equity platform and not standalone real estate managers. Other notable observations include.
- Most real estate PE firms also operate globally with their global flagship funds.
- As you move down the list, it is only when you start to see boutique names that mostly invest only in the United States or specific asset classes.
Real Estate Private Equity
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Top Real Estate Private Equity Firms
The list of real estate private equity funds can be quite extensive, so we have highlighted some of the biggest players and the market segment they tend to focus on.
The industry is relatively opaque compared to other areas of the markets hence it can be difficult to cut through the true size of the real estate PE firms. Hence, instead of reporting by AUM, we feel the better representation of the firm’s size is by the size of the latest vintage in its real estate fund series as the best representation of the firm’s relative size vs. its peers.
Well accepted as the largest real estate PE firm in the world with a global platform across opportunistic, core plus and real estate debt space. BX is listed and started as a private equity manager after the GFC. The real estate platform came to the fore and is now the largest part of the firm as measured by AUM.
Lone Star Funds
A privately held private equity firm that predominately focuses on the opportunistic and distress area. Lone Star is based in Dallas, TX.
The largest Canadian alternative real estate manager based in Toronto. Brookfield’s real estate platform spans the listed and private real estate space. Although not known to operate in the opportunistic space, it is very active in the value add space.
Starwood Capital Group
Perhaps best known for its investment in Starwood Hotels, the firm has expanded to the largest collection multi-family apartment in the United States.
How Real Estate Private Equity Firms Are Structured
Just like investment banks are known to be dominated by two workstreams of sales trading and investment banking (along with always forgotten asset management division). Real estate private equity firms are split between the transaction and asset management division.
Depending on the firm, a small team of senior managers usually does portfolio management or a particular managing director which sets the real estate strategy of the fund.
Real Estate Transactions
The transaction team is responsible for deal origination, deal underwriting and deal execution. In one way, they can be seen as the investment team as they are responsible for the deal selection, opportunity evaluation and pulling the trigger on the investment by taking it to the investment committee. The transaction team is mostly responsible for the real estate private equity firm’s track record as entering the investment is just as important as the asset management capabilities.
Real Estate Asset Management
The asset management team is responsible for the execution of the business plan or the underwrite. Ideally, asset management is involved in the deal underwriting as they are ultimately responsible for delivering the business plan.