Private Equity Real Estate

BASICS OF PRIVATE EQUITY REAL ESTATE

Real Estate, Gold, etc are some of the investments which are considered port in the storm for Indian households altogether. These are considered as one of the safest places to park their funds and it can hedge inflation too. For some of you who don’t have an idea about real estate, let us break that into simple words. Real estate also known as realty, means a part or a piece of land on which any building, structure, road, man-made, or natural things are attached. There are various types of reality such as Commercial, Industrial, Residential, land, etc.

You might be wondering if there’s any way to invest in realty, because of all the valuable propositions attached to it. Yes, there are various avenues to invest in when it comes to Real Estate. For instance, House Flipping, Renting out properties, Real Estate Investment Trusts (REIT’s), Real Estate Investment Groups (REIG’s), Private Equity Real Estate Funds, etc.

Let’s understand what all these terms mean, so you don’t get confused between these real estate jargons.

House Flipping is as simple as when you’re buying a home or property intending to sell it in the short-term period and not waiting for it to appreciate or live there. Flipping is mostly acquainted with short term transactions with the aim of earning profit.

Renting out properties is a basic concept where an owner rents out a property to a tenant or occupant and receives money or payment in return. Renting can be done either for residential or commercial properties depending upon the owner.

REIT’s are explained in the latter part of the article. Read it till the end and find out why there is an all-time confusion between REITs & PE Real Estate.

Now, let us understand Private Equity Real Estate and why should someone invest in it? In layman terms, it refers to an asset class which is primarily a mixture of Real Estate & equity. There are various institutions such as Pension Funds, high net-worth individuals, and investors, third parties who invest on behalf of institutions that take part in investing in Private Equity Real Estate. People who are looking for diversification in their portfolios generally go with this investment option as the fund manager typically decides on which properties to invest in.

While one is going for these kinds of investments, they shouldn’t forget that there is a large amount of capital involved with a commitment for a long time. Returns associated with these types of funds are generally high as there is a direct relation with risk. A fund manager typically invests in industrial, retail, offices, residential and other properties.

There are various funds related to Private Equity Real Estate Investing such as Aditya Birla Real Estate Fund, Everstone Horizon Realty Fund, Secura India Real Estate Fund, HDFC Property Fund, etc. It is advisable that to always look at their past performance as well as returns and also check the background of the Fund Manager or team.

While investing in real estate takes a long-term outlook, there are various factors that hinder the fund inflow in this sector. For instance say, COVID-19 has hit the real estate sector so tremendously. A report from Colliers International, a Real Estate company says that the overall private equity inflow stood at Rs. 65 billion, which is just 15% of the year 2019.

Now, let’s take a look at Asset Classification for these funds and how geographically diverse are these funds.

Companies are gradually diversifying and increasing their investments in various sectors. They are broadening their branches to Commercial Offices, Residential segment, Retail, Warehousing, Industrial Logistics, and alternative sectors like Student housing and co-living platforms.

Talking about the locations, these mainly include Mumbai, Hyderabad, Pune, Chennai, Bengaluru, Delhi, Bhubaneswar, etc. For example, Sequoia Capital invested in Stanza Living, Delhi-based accommodation.

Did You Know: Hyderabad has become the second most preferred destination for investment in realty sector.

People typically mistake Private Equity Real Estate & Real Estate Investment Trust (REIT’s), while both the terms look alike but there’s a difference between the two of them when it comes to investment. The major difference is while PE Real Estate invests in different properties and the securities of companies, REIT is an association of members who own a property/land. They develop a land, own a part of it, and share the dividend among its members. While some REITs are publicly traded and affected by market fluctuations, PE Real Estate funds are only available to high accredited investors.

For instance, there are some REITs listed on the National Stock Exchange (NSE) like Embassy, Mindspace, etc.

Summing it up, if you are a high net-worth individual with an outlook of long-term, high-risk tolerance, and an investor with no need for instant liquidity you can add this as an investment option in your portfolio.