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Global market outlook: Trends in real estate private equity - EY - Global

Trends facing real estate private equity

Changes to fund structuring terms

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Global real estate funds contacts

Mark Grinis
Global Real Estate Funds Leader
+1 212 773 5148
Robert Otremba
Associate Director, Global Real Estate Funds
+44 207 951 0607
Dovid Frankel
Americas Real Estate Funds Leader
+1 212 773 4536
Josh Herrenkohl
Real Estate Advisory Investor Services Leader
+1 212 773 3302
Michael Hornsby
EMEIA Real Estate Funds Leader
+352 42 124 8310
Akira Toda
Japan Real Estate Funds Leader
+81 3 3503 1100
Matt Maltz
UK Real Estate Funds Leader
+44 20 7951 1886
Alfred Yin
China Real Estate Funds Leader
+86 21 22282152

Global real estate contacts

Howard Roth
Global Real Estate Leader
+1 212 773 4910
Ad Buisman
EMEIA Real Estate Leader
+31 88 407 9433
Rick Sinkuler
Global Real Estate Markets Leader
+1 312 879 6516
Chris Lawton
Asia-Pacific Real Estate Funds Leader
+61 2 9248 5555
Michael Straneva
Americas Real Estate Leader
+1 602 322 3610
Shohei Harada
Japan Real Estate Leader
+81 3 3503 1283


Deal terms that were standard before the crisis have been challenged and modified as the sector moves into the post-crisis era.

The private equity real estate market placed a concentrated focus on fund management fees as a result of the economic crisis.

Fund managers face pressure to structure fees consistently with industry norms. Deal terms that were standard before the crisis have been challenged and modified as the sector moves into the post-crisis era.

The pendulum has definitely moved for many managers, although there is some evidence that it's starting to swing back toward pre-crisis levels.

We've found that since the economic crisis, the average preferred return for real estate funds is 9%.

Preferred return level: Funds closed post-crisis

Preferred return level: Funds closed post-crisis

Comparing the average 2007 terms with 2011 terms

How have the average terms changed since the financial crisis? Use the chart below to see how terms have evolved and to benchmark your business against this data.

Key term 2007 trend (pre financial crisis) 2011 trend
Waterfall structure Mostly deal-by-deal returns Seeing an increasing trend toward full pooling of returns as opposed to deal-by-deal returns, which were
common on the legacy funds
Carried interest 80/20 the typical structure, with a 50/50 distribution to get to the agreed-upon profit split 80/20 the typical structure, with a 60/40 or 70/30 distribution in favor of limited partners (LPs) to get to
the agreed-upon profit split becoming increasingly prevalent.
New trend — carried interest to be reviewed by auditors before payment
Preferred returns Mostly 9% Should be calculated from the day capital is contributed to the point of distribution.
Average of 8.8%
Target returns Levered returns of 20%+ Levered returns of 16%–20%+
Investment period Average of four years Generally now being scaled back to three years
Overall fund period Eight-year period, with option to extend for two one-year periods Evidence suggests shorter fund durations, now six years on average vs. the typical eight year-term precrash,
with the option to extend for two one-year periods
Clawback provisions Generally did not extend beyond the term of the fund The period should extend beyond the term of the fund, including liquidation and any provision for LP giveback of distributions
General partner (GP) commitments Standard of 1% LPs are expecting aggregate GP commitments to be meaningful. This should be contributed through cash and not through the waiver of management fees
Management fees Average of 1.5% of capital commitment during investment period and invested capital after investment period Based on actual costs incurred by the GP on a cumulative basis and capped — with many having .5% on committed capital and 1.35%–1.75% on invested capital, but can go lower depending on size of committed capital and can vary based on commitment period and investment period
Leverage (maximum) Averaging in the 65%–75% range Averaging in the 60%–70% range


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Mark Grinis
Global Real Estate Funds Leader
+1 212 773 5148

Robert Otremba
Associate Director, Global Real Estate Funds
+44 207 951 0607

Dovid Frankel
Americas Real Estate Funds Leader
+1 212 773 4343
Josh Herrenkohl
Real Estate Advisory Investor Services Leader
+1 212 773 3302
Michael Hornsby
EMEIA Real Estate Funds Leader
+352 42 124 8310
Akira Toda
Japan Real Estate Funds Leader
+81 3 3503 1100
Matt Maltz
UK Real Estate Funds Leader
+44 20 7951 1886
Alfred Yin
China Real Estate Funds Leader
+86 21 22282152

Howard Roth
Global Real Estate Leader
+1 212 773 4910

Ad Buisman
EMEIA Real Estate Leader
+31 88 407 9433

Rick Sinkuler
Global Real Estate Markets Leader
+1 312 879 6516
Chris Lawton
Asia-Pacifi c Real Estate Funds Leader
+61 2 9248 5555
Michael Straneva
Americas Real Estate Leader
+1 602 322 3610
Shohei Harada
Japan Real Estate Leader
+81 3 3503 1283

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