About the Survey Process
We embarked on a survey of opportunistic real estateprivate equity funds to enhance the industry’sknowledge, as well as our own, of what we have seenas a large and growing sector. The survey, whichincluded approximately 150 questions covering manysubjects, including financial and performancereporting, taxes, and infrastructure and technology, wassent to more than 100 fund General Partners, ManagingMembers, and/or Managers (collectively, “GeneralPartners”). We received 48 responses. Not allrespondents answered every question, and certainresponses were supplemented with informationgathered in personal interviews with the GeneralPartners. In total, our participants represent $72.3billion of equity raised in 145 separate funds between1988 and 2001.Ernst & Young has maintained the confidentiality of allresponses and respondents. Under no circumstanceswill the identity of the respondents be revealed to thepublic or the other respondents.In preparing this report, Ernst & Young relied on thedata and information supplied by the respondents. Wedid not attempt to verify the responses provided by therespondents, and we do not take responsibility for theaccuracy or reliability of the data.
Overview ofMajor Findings
Opportunistic real estate private equityfunds are also known as “value-added”funds and “opportunity” funds. Bywhatever name they are known, their success stems fromthe ability of savvy General Partners to locate andcapitalize on over-discounted risk or overlooked valueenhancement opportunities. Similar to more traditionalprivate equity funds (i.e., venture capital and buyoutfunds), these real estate funds target higher yielding (15%-plus leveraged) private investments. In addition, theytypically have an average life of from seven to 10 years,often with two one-year extensions. Generally, theyprovide for a 1% to 2% annual management fee, a 20%carried interest to the General Partner after achievement of a preferred return hurdle (typically 9% to 10%) and have asignificant individual, pension fund, and endowmentinvestor base. The General Partners (and their affiliates)typically commit 1% to 5% of the fund capital, butcommitments of those General Partners (and theiraffiliates) associated with investment banks often rangebetween 2% and 40%. Modern day opportunistic realestate private equity funds originated in the early 1990swith a proliferation in the number of General Partnersponsors beginning in 1997.
198819891990 1991199219931994 1995 1996 1997 1998 1999 2000 2001
( $ b i l l i o n s )
Cumulative Fund Equity Raised(by year)