The Ultimate Guide to Real Estate Equity Placement


Do you know what real estate equity placement is? Read below to know more about equity placement fees.

What exactly is an equity placement fee? An equity placement fee, also known as an equity origination fee, is a price imposed upfront by a broker in order to get limited partners, equity investors, or any other type of silent partner. When a real estate project is underwritten, a portion of the project is funded by debt and the remainder by investor and general partner equity. If the GP does not have easily available investors, they use brokers to acquire limited partners. The GP must then pay the broker a fee, comparable to a finder’s fee, for finding investors to invest in the project. Real estate equity placement costs are generally between 0.5 and 2 percent of the total equity required.

What Exactly Is A Private Placement?

A private placement is a private offering in which investors engage in a transaction provided by a sponsor. Accredited and non-accredited investor funds are pooled together to participate in larger transactions. It is not to be confused with a Real Estate Investment Trust. Although the phrase Private Placement can refer to a range of investments, thus the investment vehicle might be multifamily, office, retail, resort property, group of single-family homes, etc.

Real Estate Private Equity Understanding

Private equity real estate funds enable high-net-worth individuals and organizations such as endowments and pension funds to participate in real estate equity and debt holdings.

Private equity real estate uses an active management technique to diversify property ownership. General partners participate in a wide range of property types in various places, ranging from new development and raw land holdings to full renovation of existing properties or cash flow infusions into distressed properties.

Private equity real estate investments are frequently pooled and can take the form of limited partnerships, limited liability corporations, S-corps, C-corps, collective investment trusts, private REITs, separate insurance accounts, or other legal structures. You should hire PACE financial advisors to better understand your financial options.

Returns on Private Equity Real Estate

Despite the lack of flexibility and liquidity, this sort of investment has the potential to deliver high amounts of income with considerable price appreciation. Annual returns in the 6% to 8% range for core strategies and 8% to 10% range for core-plus strategies are not unusual.

Value-added or opportunistic tactics can generate much better returns. However, private equity real estate is sufficiently hazardous that investors might lose their whole investment if a fund underperforms.

Although equity placement fees may or may not be appropriate to a project, it is crucial to assess whether or not they should be included. An equity placement fee is not required if investors are easily accessible. An equity placement fee will be required to develop an appropriate financial model if equity is offered through a broker.