Why this investment type may be the best place to hold and grow your capital
Private equity real estate funds offer the high-wealth investor an opportunity to hold and grow – with annual returns in US dollars.
BAI Capital acts as general manager in this type of conservative fund, with attractive options currently available in Florida USA.
Let’s learn if this is the right option for you.
Intro to Private Equity Real Estate Funds
In its simplest form, a real estate private equity fund is a partnership established to raise equity for ongoing real estate investment. A general partner (GP) or the sponsor, creates the fund. The sponsor asks investors, known as limited partners (LPs) to invest equity in the partnership. Those funds, along with money borrowed from banks and other lenders, will be invested in real estate development or acquisition opportunities.
The General Partner (or sponsor/ guarantor) of the fund invests first, is paid out last, and assumes the bulk of the risks. Preferred Equity Partners (or LPs) join the partnership after the initial funds plus construction loans have been raised. Their return on investment occur yearly as a percentage of the fund operating profits, plus when fund is sold at life cycle maturation.
Advantages to this Investment type
Security – only 50% of fund costs raised via construction loan/ mortgage
Profits in US dollars
Partner in Florida real estate holdings
Conservative portfolio diversification
Security: Only 50% of fund costs raised via construction loan/ mortgage. Assets backed against sponsor capital.
Yearly returns: Returns are provided as annual coupons in the 6-10% range plus applicable bonus.
Profits in US dollars: Foreign investors can take advantage of investing in the US, and realize returns in US dollars to help counter against possible currency devaluation in country of residence.
Partner in Florida real estate holdings: Partner in hot market Florida properties, buffered by the stability of university student and medical professional tenants.
Conservative portfolio diversification: Real estate holdings in stable markets such as education and health care are relatively impervious to fluctuations in the economy.
Preferred Equity Partner Fund ROI
6-10% projected yearly coupon plus payout at fund close
Waterfall of distribution/ Fund profits in BAI Equity Funds are allocated as:
45% Preferred Partner
45% Common Partners
10% General Partner/ Sponsor
Fund Investment Life Cycle
5-10 years, typically 6 years.
Private equity property funds have several phases:
Planning, approval, capital sourcing
Construction and unit sales
Fund maturity/ sell-off
The capital sources follow a prescribed order and vary throughout the project:
General partner (GP/ Sponsor), plus common partners and construction loan
Preferred equity partners
Turnover of construction loan into mortgage. (BAI Capital’s practice of holding no more that 50% of project capital in construction loan/ mortgage debt sets us apart from industry standards that can see debt ratios up to 80/20).
Payoff of mortgage providing increase in yearly profits to general and preferred partners.
Key Private Equity Real Estate Fund Terms
Capital Stack All of the invested capital combined in the project is known as the capital stack. Highest risk and higher return investments at the top, and lower risk and lower return investments at the bottom of the stack. Capital Stack with BAI Capital
Sponsor and common equity
Mezzanine investors (hybrid debt and equity)
Second and other junior mortgages
Investment-grade first mortgages
Waterfall of Distribution Related to the capital stack, the distribution waterfall allocates capital gains between the preferred, common and general partners.
SEC – Security Exchange CommissionThe SEC is the US government agency responsible for overseeing all securities transactions that are bound by the Securities Act.
Accredited Investor As per Rule 501 of Regulation D of the Securities Act, accredited investors are those investors with a personal net worth in excess of $1 million USD, excluding the value of their home (individually or jointly with their spouse), or investors with annual income in excess of $200,000 in the past two years and a reasonable expectation of the same in the current year ($300,000 jointly with their spouse)
Yearly Coupon A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity.