Understanding Real Estate Private Equity Strategies and How it Affects Your Investment
Real Estate Private Equity Investment Strategies
Understanding real estate private equity is essential for any seasoned real estate investor. At Valiance Capital, we want to make sure that you understand exactly what you’re investing in, how it can benefit your portfolio, and how it fits into your overall investment strategy.
Real Estate Private Equity firms can be divided by the types of properties they’re interested in (sector), the business approach they take to earn a profit on those properties (strategy), where they do their business (geography), how their funds are distributed across their various investments (capital structure), and how they organize deals (deal role).
- Sector: Within the broader category of commercial real estate, what types of properties are they interested in? Data centers, cell towers, multi-family residential rentals, office buildings, hospitality, or a mix of all of the above? Smaller REPE firms tend to specialize in just one while larger firms diversify across a number of them.
- Strategy: Some firms are interested in buy-and-hold opportunities of apartment buildings, office buildings, and other income-producing property with an established history of returns. This is called “Core” investing, where the owners are relying on long-term leases to tenants. Other firms are more interested in fix-and-flip and value-add opportunities, where they’ll identify distressed or discounted property in great markets, and then remodel, redesign, and renovate it to make it more attractive to potential tenants. This is called “Opportunistic” and “Value-Add.”
- Geography: This category is straightforward: where is the REPE doing the majority of their business? Most investors like to invest domestically for tax purposes and general proximity. Is the REPE investing in properties in the Midwest, Southeast, or East Coast of the United States? Are they international? Focused on condominiums in vacation spots in Central America? Real estate is location, location, location, and a great business model stands no chance against dwindling demand in certain locations.
- Capital Structure: Since REPE firms aren’t regulated as heavily as REITs or REOCs, they’re open to a range of investments, including debt. While evaluating different REPE firms, it’s best to do your due diligence to find out exactly what they’re holding (and if that’s something you or your institution is actually interested in).
- Deal Flow: This ties in with the strategy bullet point above, but what role does the firm play in making deals? Are they a more active General Partner, overseeing management, or are they a Limited Partner?
Getting Started With Real Estate Private Equity Investing
The best way to get started with private equity in real estate would be to narrow down exactly what you’re looking for. Do you want to invest in a REPE that’s spread out across many different potential segments in the commercial sector or are you looking for one that’s more specialized? Are you confident that the real estate market where the REPE is located is poised for growth?
Then, try to set up some meetings with companies in your target area, making sure that their capital structure is consistent with your goals.
While some big REPE firms tend to focus on the whole spectrum of potential commercial investments, there are other companies who prefer to specialize in a particular segment, earning greater expertise and leverage in that segment.
Here at Valiance Capital, we choose to do just that. Operating within Texas and California, we focus and specialize in multi-family and student housing real estate. Both Texas and California have experienced the hottest growth in the real estate market in decades -- and with the recent zoning restructuring laws in California, they’re poised for even more.
In order to better understand real estate private equity strategies and our own position in the market, take a look at our strategy below...
Valiance Capital’s Private Equity Strategy
- Sector: Valiance Capital focused on student housing and multifamily properties. Student housing has seen its highest rent growth in years. Investors rightfully see these bustling sectors as having a lot of potential for growth and steady income.
- Strategy: “Opportunistic” and “Value-Add.” We search for run-down, distressed, or discounted properties with the intention to fix them up and manage them ourselves. Since so much of what we do is in-house, that benefits our investors even further. We don’t lose money to middlemen, it all goes to you.
- Geography: California and Texas. These are two of the hottest states in the country for real estate, particularly for student housing. There are more than 280 universities in the state of California, and roughly 38 in Texas. Students from all over the world come to these universities for an education, and they all need somewhere to live affordably.
- Capital Structure: We specialize in syndicated equity investments. This means that our investors split a portion of the asset with any other investor.
- Deal Flow: We’re General Partners taking an active, hands-on role in deal-making and management.
Conclusion: Understanding Real Estate Private Equity Strategies
Real Estate Private Equity groups can be distinguished by property type (sector), their actual business approach (strategy), where they do their business (geography), how they distribute their funds to investors (capital structure), and how they organize deals (deal role).
Valiance searches for discount properties in the most in-demand markets in California and Texas and then fixes and flips them, performing all construction in-house and managing the properties ourselves, losing as little money in the middle as possible and ensuring the best deals for potential investors tenants. In terms of strategy, we’re focused on opportunistic, value-add properties. We remodel and renovate, making sure to always consider and address potential tenants’ desires in as cost-effective a manner as possible.
Our capital structure is syndicated equity investments, meaning that multiple investors are able to come together to fund the resources needed for one company. This way, a limited number of potential investors can come together to pool their resources and split the potential for attractive returns.
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Valiance Capital is a privately held real estate development and investment management company with a primary focus on multi-family and student housing properties.
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