June 16, 2016
Co-Investments in Real Estate: A Quick Primer
By: Neil Madsen, Managing Director
Two Key Types of Co-Investment
As institutions consider their options for real estate investing going forward, many are adding co-investments to the traditional candidate list of funds, separate accounts, and joint ventures. Like any other strategy, co-investments have some unique characteristics as well as pros and cons that need to be weighed. It is also helpful to know that the industry uses the term “co-investment” in two distinct ways:
Definition #1: Investment opportunities created by concentration limitations or other fund restrictions. These are also known as “sidecar” investments. In this context, there are opportunities for investors to contribute capital alongside the “host” fund involving a specific asset or portfolio. Pros and cons for investors and sponsors are summarized in the following matrix:
Definition #2: Sponsor capital committed to a fund, syndicate, or joint venture. In this context, there are opportunities for investors to contribute portions of the sponsor capital for funds, syndicates, or joint ventures in exchange for superior economics. This is typically structured as an “LP position in the GP” (or the LLC equivalent). Pros and cons for investors and sponsors are summarized in the following matrix:
Crucial Steps Toward Implementation
A thoughtful approach to co-investing can enhance a real estate portfolio by providing increased exposure to investments that are particularly well suited for a specific institution. To maximize potential benefits, the following steps are critical:
RCLCO provides real estate economics and market analysis, strategic planning, management consulting, litigation support, fiscal and economic impact analysis, investment analysis, portfolio structuring, and monitoring services to real estate investors, developers, home builders, financial institutions, and public agencies. Our real estate consultants help clients make the best decisions about real estate investment, repositioning, planning, and development.
RCLCO's advisory groups provide market-driven, analytically based, and financially sound solutions. Interested in learning more about RCLCO's services? Please visit us at www.rclco.com/expertise.