Do you think small real estate funds won’t succeed in increasing money?
That’s not entirely true! In fact, there are a lot of reasons why it is proven to even work better.
It is because if you focus on smaller deals, there are ways you can find anomalies or mistakes better than on bigger ones, where we can admit would also be too big of a hassle.By reading more below, it will show more reasons on why this is the case and not the latter.
Before, it was assumed to be a risky alternative investment. Private equity real estate has become popular. Capital hoards of asset managers like Apollo Capital Management, Blackstone Group, and Starwood Capital are one indicator. What does this imply for high net worth individuals (HNWIs) who want to build wealth?
A $15.8 billion private real estate fund was raised by The Blackstone Group, which is well-known for its opportunistic real estate funds, in 2015, making it the biggest private real estate fund ever. In 2014, it also introduced its first open-end core-plus real estate fund, which had assets totaling $17 billion. Lone Star Funds raised $5.9 billion for its most recent real estate fund, Brookfield Asset Management completed a $9 billion real estate fund last year, and Starwood Capital Group set a $6 billion objective for a new opportunistic fund.
These megafunds unquestionably demonstrate the crucial role real-estate-focused private equity can play in HNWI portfolios that generate wealth. Does size matter, though, in private equity real estate? Which real estate funds have a better track record—large or small? The outcomes of our calculations are unexpected.
We examined Preqin’s return on investment statistics for real estate private equity firms that made their initial investments between 2005 and 2015, as I previously mentioned in the Huffington Post. The typical net internal rate of return (IRR) for funds with assets of $1 billion or greater was 5.7 percent. Nevertheless, the net IRR was 11.2% for real estate equity funds with assets under $200 million. The amount of money received was smaller by smaller asset managers by 96%.
We remain a small participant in a market dominated by managers like Apollo and Blackstone. But we constantly outperform our larger competitors thanks to our wealth-generating approach. We have an edge over the megafunds because of our smaller size and ability to
execute deals perfectly while maximizing value and profitability. We can look for value in commercial real estate market niches that the mega funds haven’t looked at.
Here are some particular instances of how this strategy helps HNWIs build wealth:
Look for good deals. We are still concentrating on transactions between $10 million and $40 million. Due to their attention being drawn to megadeals, big funders disregard this price bracket. We assess homes that are for sale and those that are not to identify hidden gems in the local market.
Maintain pricing restraint. To ensure we’re buying at the proper price, we use a combination of our first-hand market expertise and thorough financial research. Our connections with landlords, cash resources, and track record of success enable us to purchase properties off-market or at advantageous pricing.
Perfect your execution to get the best outcomes. By supporting upgrades that immediately affect lease rates and supports higher sales prices, our business model increases the value of the real estate. Due to our scale, we can execute every aspect of our project plans to generate earnings when we possess property and after selling.
We’ve constructed a platform for high-net-worth individuals, and that’s an exceptionally significant investment group for a small private equity real estate company. It illustrates how strongly our HNWI partners believe in the effectiveness of our asset management strategy. It’s a good technique when going against the grain of the real estate funds, and has produced better outcomes. Significantly, our expansion will provide riches to additional investors.
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Come join us! Email me at mark@dolphinpi.us to find out more about our next real estate investment.