Private Equity Real Estate

Private equity real estate refers to pooled funds that raise money from investors to buy, improve and sell property. Funds are often grouped by strategy: core, core-plus, value-add and opportunistic. Each targets a different mix of current cap rate and future growth.

Core funds buy stabilized, well-leased property at relatively low cap rates and rely mostly on income. Value-add funds buy property with vacancy, below-market rents or deferred maintenance, often at a lower initial cap rate on current NOI, and aim to raise NOI and sell at a better one.

Individual investors use the same logic on a smaller scale. Buying a rental below its rental value, raising rents to market and fixing expenses is a value-add strategy. The cap rate on purchase matters less than the cap rate on the stabilized NOI.